Plan conversion and deconversion

What a plan conversion is

The plan itself continues. It keeps its history, its participants and their vesting, and gets a new provider. The usual steps are: give notice to the current provider, sign with the new one, restate the plan document, map the old investments to new ones, send participants a blackout notice, transfer assets and records, and reconnect payroll.

Why it matters to employers

Choosing and changing a provider is a fiduciary decision, so keep a record of why you made it. If participants will be unable to direct investments or take loans and distributions for more than three consecutive business days, the plan administrator must give a blackout notice 30 to 60 days in advance. Moving at the start of a plan year keeps one provider responsible for that year’s testing and Form 5500.

Example

A company signs with a new provider in September for a January 1 start. Employees receive the blackout notice in November, assets move at year end, and accounts open at the new provider in January with balances, loans and vesting history loaded.

Common mistakes

• Terminating the plan when you only meant to change providers. That forces full vesting and can trigger the successor plan rule.

• Sending the blackout notice late or not at all.

• Not collecting prior-year test results, loan records and vesting data from the old provider.

• Not checking the old contract for notice periods.