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Your company is changing 401(k) providers. What to do?
At a high level, this means that your employer has chosen a new firm to administer and record its company-sponsored pension plan. These firms track employee details such as total savings, contributions, transactions, investments, holdings and distributions.
That’s not unusual: In fact, 24% of employers that sponsor a workplace 401(k) or similar plan report that they are somewhat or very likely to look for a new plan administrator in 2022, according to a survey by Callan, a consulting firm.
There is little that employees can do after the fact, when you are likely to find out about the change. But workers should take a few steps to make sure the transfer was smooth and all their funds were accounted for, according to financial advisers.
“Mistakes happen,” said certified financial planner Philip Chao, managing director and chief investment officer of Experiential Wealth, based in Cabin John, Md. “The system just isn’t that efficient. That’s just the reality.”
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Among the most important checks: confirming that your post-switch account balance and investment holdings are in line with pre-switch totals.
To do that, workers can review the final account statement issued by the former 401(k) plan administrator and the first statement issued by the new administrator, according to financial advisors. (These firms are also known as “rectors”.)
It may take several weeks before workers receive both documents online or in the mail.
If there is an error, “call the registrar immediately and say, ‘This is a statement from the last registrar.’ It shows that I had a final number of $15,000 and your starting number was $14,900. What happened to my $100? Bye, giving a hypothetical example.
“If they don’t give a satisfactory answer, you need to go to HR to get an answer,” he added.
In addition, investors should ensure that their asset allocation and investment vehicles remain the same.
Employers sometimes decide to “sweep” some or all employees into new investments during a transition. This new fund is typically a standard 401(k) plan, which is often a target date fund.
Depositors would have been alerted to such a transition before the transition to a new administrator, but investors may have missed the disclosure, according to Ellen Lander, principal and founder of Renaissance Benefit Advisors Group in New York.
“Don’t assume that the fund you were in is the same fund you’re in now or has the same strategy,” Lander said. “You might think you were in the S&P 500 index fund, but you might be in the [target date fund] now,” she added.
Even if your funds haven’t changed, make sure your asset allocation and other investment guidelines, such as your contribution rate, are the same.
For example, if you it used to be a 60-40 split of stocks and bonds, now the same? Is your contribution rate still at, say, 10%, and is it properly split between your desired pre-tax and Roth savings?
Investors should also use the opportunity to weigh their investments, asset allocation and diversification more broadly, Lander said.
Additionally, workers should check their new administrator’s account portal to make sure beneficiary information is preserved, she said. Beneficiary designations are important—they usually supersede wishes for a 401(k) account in a will, so incorrect or outdated information here could send your account balance to the wrong person.
In theory, employers should perform quality checks to ensure that the transition is seamless for investors. Employers have a duty (a “fiduciary” duty, in legal terms) to monitor their 401(k) plans on behalf of participants. But that doesn’t mean employees should abandon their own review, the advisers said.
“Be informed and aware of your money,” Chao said. “No one cares about your money like you do.”