How do I switch from my legacy retirement plan to a new plan?

New providers are disrupting Canada’s retirement industry, shaking up the status quo of high fees, needless complexity, and low innovation. More employers are seizing this opportunity to replace their legacy plan provider with a plan that delivers better outcomes for their team and value for their organization. Whether you’ve already decided to make the switch or are just starting to consider your options, an important question to consider is: How will I switch from my legacy plan to a new provider?

3 steps to transitioning to a better retirement plan

1. Will you adjust or update your plan design?

Switching to a new retirement plan provider is a chance to take a fresh look at how your retirement benefits are designed. Is your matching or employer contribution still meeting the goals you have for your program? Have there been changes to your organization’s financial position, the makeup of your team, the compensation approaches of your competitors, or other factors that might be reasons to adjust your program? If so, what changes (like increasing the matching level or adjusting eligibility) could make your program more effective? Good plan design requires a thoughtful approach. Your new plan provider should have expertise and research to help you figure out what’s best for your team. Common Wealth’s primer on match making is a good starting point if you want to learn more about the key elements of plan design.

2. Determine how employees will make the transition

There are two main ways that employees can transition into your new plan, each with advantages and drawbacks:

Option 1: Start your new plan on a “go-forward” basis

One option for transferring to your new plan is to start it on a “go-forward” basis. This means that future contributions and matching will be made within the new plan, but existing accounts will not be automatically transferred over.

In this case, you will work with your plan provider to decide on an implementation date for starting your new plan. The most convenient date will be the beginning of an upcoming payroll cycle. Two to four weeks before the implementation date, notify staff of the transition and work with your plan provider to help them enroll in the new plan. As of the implementation date, your contributions and payroll deductions will be made to the new plan. Employees will need to enroll in the plan in order to receive employer contributions or matching dollars. For the funds they have already accumulated, employees can choose to either keep their existing funds with the previous provider or transfer their funds into the new plan.

Advantages:

• • More employee choice: For savings they have already accumulated, employees will have the option to keep their accounts with the legacy plan provider. Employees who are happy with the status quo will not be required to transfer funds to the new plan (though they will need to enroll in the new plan if they want to continue receiving employer contributions going forward).

Drawbacks:

• • Employees will likely have to re-enroll in the new plan. For this reason, it is critical that your new plan makes it straightforward for your employees to enroll, ideally through an entirely digital process. Re-enrolling employees can have upsides. Many employees may have not revisited (or ever started) their personal retirement planning. The re-enrollment process can create an opportunity to take stock of their retirement security and, if necessary, take steps to get on track. At Common Wealth, we put retirement planning at the centre of the enrollment process for this reason.
  • Some employees may leave their existing savings with the legacy plan provider. A large body of research shows that defaults are hard to resist. Because employees must take action to initiate a transfer, the default choice will be to leave their funds with the legacy plan. This means that these employees will miss out on a big part of the value of your new plan.

Option 2: Transfer your entire plan membership through a “qualifying transfer”

In addition to starting your plan on a go-forward basis, in some situations you can make a complete transfer of all member accounts to your new plan provider. This is known in industry-speak as a “qualifying transfer”.

With a qualifying transfer, member accounts are transferred as a group into your new plan. Your new plan provider will work with your legacy provider to transfer accounts, so employees won’t need to re-enroll or initiate individual transfers of funds they’ve accumulated already. Note that you must give your employees at least 30 days notice before starting the transfer, as well as send a notice of termination to your previous provider.

How can you find out if your legacy plan is eligible for a qualifying transfer?

• • Obtain a copy of your Specimen Plan – this is the RSP/TFSA application form that employees sign when enrolling in your plan
  • You can find the Specimen Plan on the member application form, or you can request it from your plan provider
  • Share the specimen plan with your new provider, who can evaluate whether the terms permit a transfer

Advantages:

• • Employees don’t need to take action: Account balances are moved over so employees will automatically get the most out of your new arrangement, both for existing savings and future contributions.

Drawbacks:

• • Qualifying transfers are not always possible: Qualifying transfers must be permitted by the terms of your legacy plan, and your outgoing provider must agree to the transfer.

3. Communicate the transition to your team

Whichever path you choose, moving to a new plan is an opportunity to focus your team’s attention on improving their financial health. Make the most of it!

Work with your new provider to announce the new plan to employees. You chose a new plan because it will make your organization and team better off – take the time to communicate this good news within your organization. If your new provider offers it, organize a team-wide education session to introduce the new program and field questions from the team. If possible, give staff the opportunity to book a live guided enrollment with an expert from the new plan provider. If you’re setting up your plan on a “go forward” basis, make sure employees know that they need to enroll. You should also highlight that they have the option to transfer their accounts from the legacy plan, and help them understand what they could gain by doing so.