Personal finance

What to know if your employer changes 401(k) providers. ‘Mistakes happen’ in transfers, advisor warns

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Your company is switching its 401(k) provider. What should you do?

At a high level, what this means is your employer chose a new firm to administer and keep records for its company-sponsored retirement plan. These firms track details for employees like total savings, contributions, trades, investments, holdings and distributions.

It’s not unusual: In fact, 24% of employers, sponsoring a 401(k) or similar workplace plan report they are somewhat or very likely to conduct a search for a new plan administrator in 2022, according to a survey conducted by Callan, a consulting firm.

There’s not much employees can do after the fact, which is when you’re likely learning of the change. But workers should take a few steps to ensure the transfer was smooth and all their funds are accounted for, according to financial advisors.

“Mistakes happen,” said certified financial planner Philip Chao, principal and chief investment officer at Experiential Wealth, based in Cabin John, Maryland. “The system is just not that efficient. That’s just the reality.”

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Make sure your starting and ending balances match

Among the most important checks: Confirming that your post-transition account balance and investment shares match their pre-transition totals.

To do so, workers can consult the final account statement issued by the 401(k) plan’s former administrator and the first statement issued by the new administrator, according to financial advisors. (These firms are also known as “record keepers.”)

It may be several weeks before workers receive both documents, whether online or in the mail.

If there’s a mistake, “immediately call the record keeper and say, ‘This is the statement from the last record keeper. It shows I had a $15,000 end number, and your beginning number was $14,900. What happened to my $100?'” said Chao, providing a hypothetical example.

“If they don’t give a satisfactory answer, then you need to go to your HR to get an answer,” he added.

Review asset allocation and fund choice

In addition, savers should ensure that their asset allocation and investment funds remained the same.

Employers sometimes choose to “sweep” some or all workers into new investments during a transition. That new fund is generally the 401(k) plan’s default, which is often a target-date fund.

Savers would have been alerted about such a switch 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 the fund you were in is the same fund you’re in now or has the same strategy,” Lander said. “You may think you were in the S&P 500 index fund, but you may be in the [target date fund] now,” she added.

Even if your funds didn’t change, check to make sure your asset allocation and other investment instructions like contribution rate are the same.

For example, if you had a 60-40 stock-bond split before, is it the same now? Is your contribution rate still 10%, for example, and is it being split correctly between your desired pre-tax and Roth savings?

Be aware and be cognizant of your money. Nobody cares about your money as much as you do.
Philip Chao
principal and chief investment officer at Experiential Wealth

Investors should also use the opportunity to weigh their investments, asset allocation and diversification more broadly, Lander said.

Double-check account beneficiaries

Additionally, workers should consult their new administrator’s online account portal to ensure their beneficiary information remained, she said. Beneficiary designations are important — they generally supersede wishes for a 401(k) account in one’s will, so wrong or outdated information here could send your account balance to the wrong person.

In theory, employers should be providing quality checks to verify the transition was seamless for investors. Employers have an obligation (a “fiduciary” duty, in legal terms) to oversee their 401(k) plans on behalf of the participants. But that doesn’t mean employees should forgo their own review, advisors said.

“Be aware and be cognizant of your money,” Chao said. “Nobody cares about your money as much as you do.”

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