Proper preparations will help plan sponsors successfully restructure defined contribution plan assets.
By Grant Johnsey
Transitioning assets for defined contribution (DC) plans is far more complex than transitioning defined benefit (DB) plans and therefore requires careful planning to be successful. Although the goals are the same — minimize costs, manage risk and effectively coordinate the entire event — there are significant differences in the transition processes that need to be addressed.
Among the prime differentiating factors of a DC plan transition are the potential for ongoing investment activity and the greater visibility by participants. During the transition, participants will be able to monitor their investments and may continue to move their assets in a variety of ways, including payroll contributions, retiree disbursements, new loans, loan repayment, inter-fund transfers and full distribution for departing employees.
To avoid ongoing participant activity, many DC plans institute a blackout period during the transition. A blackout period restricts participant activity and prohibits any movement of assets.
While this simplifies the transition and makes planning easier, a blackout period is undesirable from a participant perspective because no fund changes, contributions or payments are permitted. For these reasons, it typically makes sense to conduct a transition without a blackout period whenever possible.
Consider these points when transitioning DC assets to help facilitate a smooth event without a blackout period.
Through careful planning, a defined contribution plan sponsor not only can better manage a transitioning event, but also keep participants active and assets growing.