A Guide for Retirement Plans: Transitioning from Balance Forward to Daily Recordkeeping 

When managing retirement plans, the choice between daily and balance forward recordkeeping is an important consideration. Both methods have their advantages, but many modern-day plans are shifting towards daily recordkeeping for its distinct benefits. Here we look at the differences between the two, the potential advantages of daily recordkeeping, and what a transition process might look like. 

Daily vs. Balance Forward Recordkeeping 

Balance Forward Recordkeeping: This method involves updating participant accounts periodically, typically at the end of each quarter or year. Contributions, investment gains, and losses are calculated and applied at these intervals, meaning participants do not see real-time changes in their account balances, which are fixed as of specified allocation dates. 

Daily Recordkeeping: In contrast, daily recordkeeping updates participant accounts as of each day that the stock markets are open. This means contributions, investment changes, and other transactions are reflected as they happen, providing a more accurate and up-to-date view of each employee’s retirement savings account. 

Advantages of Daily Recordkeeping 

Reduced Fiduciary Exposure: By providing a more up-to-date and equitable valuation of accounts, fiduciaries are less exposed to risks associated with outdated account information, especially when issuing distributions.

Offering an Investment Menu: While permitting participants to choose investments is possible in a balance-forward environment, it is not common. Investment choice is far simpler on a daily platform, and accommodating a larger menu is far more practical.

Elimination of Payout Windows: Daily recordkeeping generally eliminates the need for specific payout windows, simplifying the distribution process.

Simplified Administration: With less paperwork and administration, daily recordkeeping can reduce the overall administrative burden on the plan sponsor.

Minimized Market Fluctuation Impact: Real-time updates mean that market fluctuations have less impact on administrative processes, such as transfers and distributions.

Enhanced Participant Access: Participants benefit from web features, increased employee education, and on-demand account access.

Delegation of Functions: Certain administrative functions, such as the approval of distributions, may be delegated to a third-party provider.

Cost-Effectiveness: Over time, daily recordkeeping could be less expensive due to streamlined processes and reduced administrative tasks.

Ease of Adding Features: Adding features like loan programs or a 401(k) option is simpler with daily recordkeeping.

Straightforward Conversion: If the plan’s records are already maintained by a third party, converting to daily recordkeeping is reasonably straightforward.

Provider Consolidation: If desired, a single provider can serve as the recordkeeper, TPA and investment advisor, also streamlining provider management.

The Conversion Process 

Transitioning from balance forward to daily recordkeeping can be quite straightforward and streamlined. A 90-day transition plan might look like the following:

90 Days Prior to Conversion:

• Communicate with all affected parties.
• Prepare a detailed timeline.
• Discuss conversion details.
• Create transition documents.
• Finalize the investment menu.

60 Days Prior to Conversion:

• Announce the plan transition.
• Prepare employee communications.
• Hold enrollment meetings.
• Sign necessary documents.
• Review payroll files.
• Begin the blackout period.

30 Days Prior Through Conversion:

• Finalize payroll details.
• Transfer investments.
• Implement elections.
• Reconcile accounts.
• Implement new processes.
• End the blackout period.

Transitioning to daily recordkeeping can enhance the efficiency and accuracy of managing retirement plans. By understanding the benefits and following a clear conversion timeline, organizations can ensure a smooth transition that benefits both the organization and participants.