The Retirement Plan Management Services division of RCP Solutions recently attended and presented at the SPARK Forum (Society of Professional Asset-Managers and Record Keepers) in Palm Beach, FL. RCP Solutions CEO, Dorothy Flynn and President of the Retirement Plan Management Services division, Mark Sweatman, presented on the topic of “Record Keeper Risks: What to do with Plan Terminations, Missing Participants, Un-cashed checks and Escheat”. The session was well attended by participants that represented record keepers, custodians and third party administrators. These risks face all record keepers and custodians but how to deal with them can differ from one organization to the next.
The presentation discussed how the sour economy has increased plan terminations. There are over 40,000 plans each year on the defined contribution side that terminate. This can happen due to a company going out of business, filing for bankruptcy, terminating a plan that has been acquired or simply to reduce costs. Having a streamlined process to provide to your clients when this situation arises is key. A plan sponsor typically has never been through this process before so they will look to their trusted partners to help.
Providing a Department of Labor compliant process to effectively terminate the plan, along with the necessary audit trail will reduce risks and costs to both the record keeper and their plan sponsor client. Simply rolling assets over isn’t the answer. There are no short cuts to compliance. How do you defend yourself and your client when a participant comes forward asking you to prove what you’ve done to communicate with them? What do you do with missing participants? The presentation also described the challenge that missing participants present for record keepers and their plan sponsor clients. It was estimated that a minimum of 10% of a record keepers files have bad information. That can occur due to bad addresses, incorrect Social Security Numbers and unknown deceased participants as an example.
In the Defined Benefit world, often plan sponsors want to know the second a participant passes away so they don’t have to continue funding the account. That best practice falls short in the Defined Contribution side as folks consider it “the participants money.” What risks are presented to a record keeper or their plan sponsor clients on the Defined Contribution side if they have folks that have died 1, 5, 10 years ago and are unaware of it? Who is receiving the quarterly statements or required communications? Who is cashing the checks that are being sent to them? Un-cashed checks present a huge issue that all record keepers and custodians have to deal with. The costs internally to support this issue are astronomical and oftentimes are not streamlined. An example was provided of a mid-size record keeper who has over 23,000 stale dated checks each year.
The cost to support that effort is over $250,000 each year. The risk to record keepers or custodians by failing to have a solution for their clients is that they will hear from plan sponsor clients individually that want it addressed a different way. In one way or another, the record keeper or custodian is going to have to be involved anyway by taking phone calls, reissuing checks, etc. Having a streamlined process will help reduce risks and costs as well. Un-cashed checks come in all shapes and sizes and each may have a unique end destination which may include escheat to the states. Having a documented strategy by the type of checks will reduce not only the questions you receive from internal audit and compliance, but also help defend yourself should the regulators come knocking.
RCP Solutions also exhibited at the conference and discussed ways in which to help providers and plan sponsors understand these issues and execute on programs to resolve them. By being proactive, record keepers and custodians are able to reduce unwanted costs and the exposure to regulatory risks. RCP Solutions realizes that these risks are not a one size fits all and differ from one record keeper or custodian to the next. Understanding the unique challenges that each entity faces while reducing risks and costs are how RCP Solutions helps.
Go from SPARK Forum back to the Blog
