Press Release
Strong Retirement Plan Services Looks At 401k Conversions
MILWAUKEE, January 24, 2002 – Routine administrative "lockdowns" — more commonly known as "blackouts," "transition," or "quiet periods" that take place when a company decides to change 401k plan service providers—have rocketed into mainstream news with the issues surrounding the Enron retirement plan. While Enron's story is more about how a company chooses to offer company stock in its retirement plan, all transitions are now attracting attention.
"These transition periods are routine in the 401k industry," explains Christine Skatchke, Director of Compliance and Implementation for Strong Retirement Plan Services. “But companies and plan providers are definitely taking a closer look at this practice."
A quiet period occurs when a company decides to switch 401k plan service providers. A change in providers is often good news for both participants and the company. It may result in lower administrative costs for the company and an increase in services for the employee, such as daily valuation of the plan, access to an Internet site with retirement account information, or additional employee education.
"Five to ten years ago, it was common for plans to convert all of the participant’s investments to cash equivalents, like money market funds, prior to a conversion,” says Ms. Skatchke. “But during the raging bull market of the 1990s, employers received backlash from investors about missing out on the big run-ups in the stock market while their money was locked in cash."
"Companies responded by leaving the 401k assets invested as the participants chose," continues Ms. Skatchke. “But now we’re seeing the opposite effect. When the market goes down, some people want to move out of the stock market. When they find that they can’t do this during the conversion, they’re pretty upset."
The industry has shortened the length of the average conversion over the years, but how can companies ensure that a conversion goes smoothly?
"Communication is key," says Clare Bergquist, Director of 401k Communications for Strong. "Any kind of change, especially when it involves an individual’s money and future, can be frightening. By putting an emphasis on educating your employees about the change and communicating to them regularly, you can put your employees at ease and make the transition very positive."
Ms. Bergquist and Ms. Skatchke co-wrote a paper, Your Plan’s Conversion–Seven Steps to Success, for plan sponsors on how to effectively manage your plan’s conversion to a new provider. Their advice to plan sponsors:
- Ensure your employees are well-informed and comfortable with the change.
- Address employee issues and concerns directly. Do not whitewash any issues.
- Communicate dates that you are comfortable that you can achieve.
Strong Retirement Plan Services is the defined contribution division of Strong Capital Management, Inc. Strong Capital Management is an independently owned investment advisor serving institutions, retirement plans, foundations, and Taft-Hartley plans. Founded in 1974, the firm manages $46 billion. Securities are offered through Strong Investments, Inc., an affiliated company.
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