The challenge

In defined contribution plans, Milliman’s systems management group works with outside payroll vendors to identify and map client payroll files as a component of new business conversion and plan design project plans. When plan sponsors undergo mergers or acquisitions, timelines are often compressed and a specialized third party may not be available to coordinate payroll programming. In these cases, a customized solution may have to be developed.

Recently, a long-term Milliman client sold a division of their existing operation. A large group of employee 401(k) accounts were scheduled to merge into their new employer’s 401(k) plan three months after the sale closed. This event posed a unique operational challenge. Many of the participants involved in the transaction had more than one outstanding loan and were at risk of falling behind on payments or even defaulting on their loans as they were no longer receiving wages from their former employer. Both the prior and new plan sponsors recognized the need to provide these employees with a positive experience during the transition period. With this goal in mind, the successor human resource contacts emphasized the desire to find a way for participants to make loan payments as a payroll deduction from their new employment wages while the asset transfer was pending. They looked to Milliman to come up with a solution.

The solution

The new employer did not want their employees to worry about making loan payments on their own during the employment change. Previously, the prior employer’s HR department deducted loan payments from payroll for participants holding loans and no further action was required. The new employer did not follow this same process. In addition, the participant data and assets were not moving for 90 days during the change of employment. How could this process remain easy for employees? Once the employer changed, the acquired employees’ assets were left in place for the transition period, and it appeared making loan payments would not be an easy task. There was no longer a file or funding for the former employer to send to Milliman for processing. Who was going to coordinate payroll funding and resources to create a file and manage the loan payments?

Milliman’s systems management group tackled these challenges and filled the void created by the absence of having a standard set of processing steps by coordinating this ad-hoc loan project. Milliman systems management worked alongside the relationship management and plan management teams to design, confirm, and process custom loan repayment files for the acquisition group. Systems management collaborated with the acquiring firm’s HR department to ensure funding, file delivery, and scheduled processing timelines were aligned so that the loan payments were made correctly until the assets transferred. The new employer sent files to Milliman on a per payroll basis for the three-month window where assets remained in the former employers’ retirement plan at Milliman. In order to establish file transfers, systems management enlisted Milliman IT to set up a secure File Transfer Protocol (FTP) site unique to the client. Designated contacts were selected to receive notification of file delivery. The acquiring company initiated the loan payments by wire transfer and provided the loan repayment files for processing to Milliman during the transition period. The plan manager ensured the notices of deposit were completed at the trust and the loan repayment files were posted timely on both weekly and bi-weekly frequencies. Both the existing client and the acquiring company were pleased with the Milliman interim payroll solution.

Oftentimes, using non-standard processes are challenging for recordkeepers because they fall outside of the conventional routine. However, custom solutions often require lead time to develop and implement. A third party payroll vendor is often brought in to provide these capabilities. Many of the most critical aspects of the project hinge on a delivery timeline that programmers and HR departments can commit to providing from their respective teams. However, during this project, Milliman systems management took a leading role in finding a solution. They delivered the client a process to handle multiple participant loan payments on multiple payroll frequencies in an abbreviated period of time. Because the newly acquired employees were already receiving their first paychecks shortly after close of the sale, finding a timely method to address loan payment deductions was essential. It was also vital to ensure there was no delay in funding and recordkeeping the plan loan assets during the transition. With each of these requirements, Milliman was up to the task of redesigning the playbook to implement a successful strategy.

The outcome

As a result of these efforts by the Milliman systems management group, the newly merged employees were able to stay current with their prior plan loans, and the plans avoided any compliance issues with delinquent and defaulted loans as the broader implementation project to transfer accounts was underway. By working across departments and with multiple employers in a timely manner, Milliman was able to offer a solution that allowed participants to continue to pay down their loans and offered them a degree of normalcy, while other aspects of their employment were changing.