Thinking About Changing 401(k) Providers? Five Things You Should Know

August 4th, 2020
by Jonathan Leidy

Headline Image - Thinking About Changing 401(k) Providers; Five Things You Should Know

Offering a competitive benefits package, including a top-notch 401(k) plan, is essential for your company to recruit and retain premier talent.

Today’s workers highly value employer-sponsored retirement plans: 88% of them say that an employee-funded retirement plan is important to them.[1] In addition, eight out of ten new hire candidates consider retirement savings programs offered by prospective employers a major factor in their job search decisions.[2]

As a result, you should evaluate your 401(k) plan regularly — at least once a year — to ensure that it continues to be the right fit for your business and employees. For example, if you find during your review that you’re plan has any combination of high fees, poor investment performance or a lack of service and support, it may be time to consider changing providers. In addition, with many 401(k) providers offering new technology and features, now may be a good time to see if you’re offering everything that you can to your participants.

If you’re considering making a change, here are five tips to help you evaluate your current provider. If you decide to switch, we can help make the transition to your new one as smooth as possible:

#1 Before considering new 401(k) providers, carefully review your existing one.

Clearly identify why you’re unhappy with your current plan provider and services, then determine the improvements you’d like to see going forward. While your cons list for your existing provider may include “fees are too high,” don’t let that be the only reason for switching. Comparing plan providers based on fees alone doesn’t usually reflect the value you’re getting for what you’re paying.

Instead of focusing solely on fees, weigh your current provider — and any prospective ones in the running — based on factors such as:

  • Services and design features
  • Fees and structure
  • Employer and employee customer service and support
  • Investment options
  • Fiduciary support

#2 Get familiar with the conversion process.

Let’s say you decide to change plan providers. After you choose one, what’s next? An experienced provider should do most of the heavy lifting when transitioning your plan to their platform — called a conversion. To start, you’ll need to review and complete paperwork for your current plan to share with your old and new providers.

You can also expect[3]:

  • Your new provider to review your previous plan
  • Preparation and testing to confirm a clean data transfer between providers, including participant account balances and contribution rates
  • Communication to employees about the new plan
  • Updates to legal and recordkeeping documents to reflect plan changes
  • A blackout period, when participants won’t be able to make changes to their retirement accounts
  • Final statements issued from your former 401(k) provider
  • Creation and activation of participants’ new accounts

#3 Take note of applicable fees.

Your current provider may charge you a termination and/or surrender fee when you switch to a new one. These fees can range from a few hundred to a few thousand dollars. Call your existing provider to determine their termination and/or surrender fees in advance to avoid any surprises. Your new provider may also charge you to establish the new plan.

#4 You don’t have to stick to your old plan design.

Plan sponsors often update their plan designs when switching providers. Most plan documents allow changes to be made at any time, but keep in mind that there may be amendment, regulatory or notice requirements you must meet before these changes become effective. Also, be aware of any timing concerns — for example, investment changes must be aligned with notice and blackout period requirements. Be sure to touch base with your old and new providers to address any potential issues.

#5 Communicate plan changes to your participants.

When you make changes to your 401(k), including switching providers, you’re legally required to provide participants with a blackout notice that includes information about:

  • key dates — like the last date they can make contribution changes or rollover requests (since they won’t be able to make these changes during the blackout)
  • how long the blackout will last
  • restrictions on investment and allocation changes
  • who to contact if they need additional information

You should also provide employees with information regarding any fund or plan design changes.

Need assistance?

It may take some time to review your current plan and switch to a new provider.  Moreover, it may be that with a bit of expert guidance, you can get all the features and benefits that you are seeking without having to transfer your plan at all. Either way, getting the support, and features and investment options that are best for your plan and participants will make evaluating your plan well worth it.

If you’re interested to learn how your plan stacks up, we can help.  Just give us a call and request your complimentary Retirement Plan Diagnostic™ today. Together, we’ll help you provide an innovative and competitive 401(k) offering that gives you a distinct edge when it comes to recruiting and retaining talented employees.

[1] Transamerica Center for Retirement Studies. 17th Annual Transamerica Retirement Survey. “A Compendium of Findings About American Workers.” December 2016.

[2] Transamerica Center for Retirement Studies. 19th Annual Transamerica Retirement Survey. “Employers: The Retirement Security Challenge.” October 2019.

[3] Human Interest blog. “How to Change Your 401(k) Provider.” April 2017.