What happens when an employer changes gears — and providers — on a company-sponsored retirement savings plan? Plenty, it turns out.
For 401(k) participants, any switch in account providers should trigger some old-fashioned investigating to ensure that your new retirement plan continues to work in your best interests, and that key issues like contributions, funds, fees and beneficiary status are all operating smoothly and transparently.
These days, more employers are changing advisors — mainly due to rising fears of being sued for investment malpractice. Data from the seventh annual Fidelity Investments Plan Sponsor Attitudes Study shows that 38 percent of company executives surveyed were “worried about” being dragged into court in 2016, up from 24 percent in 2015.
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The number of companies looking to change account advisers hit 23 percent in the study, a new high, “with the most common reason being the need for a more knowledgeable advisor who is an expert in a variety of areas, including how to best manage fiduciary responsibilities,” the report stated. Seventy percent of company executives said that having an advisor take on a stronger fiduciary role is a big priority in choosing a 401(k) retirement plan advisor.
If your company goes that route, what steps should you — as a 401(k) participant — take to ensure a smooth transition when a new advisor or record keeper takes over your firm’s retirement account program?
Start by asking your employee benefits or human resources officer these key questions about your investing options:
Why are we changing retirement plans? Primarily, when a corporation decides to change gears there must be an underlying reason, says John Henry Decker, a financial planner with RBC Wealth Management in West Hartford, Connecticut. “As fiduciaries, the company must be certain in the reasons for such a change,” Decker says. “Most commonly, it’s because the provider hasn’t kept up with the growth of the plan, but increasingly it is because of the changing environment in the 401(k) industry.” Whatever the reasons, Decker says, it’s helpful for employees to know what prompted the switch.
How will the new options compare to the old program’s funds? Employees should also ask about how the old investment options compare to the new ones, says Timothy Yee, chief retirement specialist at Green Retirement, in Oakland, California. “How were the new investments screened and what were the results? For example, if the old plan had large-cap growth ABC, a five-star rated fund and the new plan has large-cap growth, one-star rated fund, the employee should ask why that is so.”
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What kind of ‘glitches’ can I expect from the switch? Employees would be wise to ensure no snafus result from the account switch, says Allie Petrova, managing partner at Petrova Law, a tax and business boutique law firm based in Greensboro, North Carolina. “For example, a participant may want to review statements generated under the new plan to confirm the balance from the old plans has been transferred in full,” she says.
What are the key dates during a 401(k) switch? Participants may wish to pay attention to key dates associated with the transfer from the old to the new plan. “Missing cutoff dates can result in lost opportunities,” Petrova says. “Some critical dates are the last date for requesting a rollover, the last date for changing contribution amounts on a go-forward basis, and the beginning and end of the blackout period.” Also, she says, the beginning of the blackout period marks the end of any opportunity to adjust a participant’s investment percentages, request loans or distributions, or reallocate investments.
Are you going to keep me in the loop during the change process? For the actual conversion, companies are required to provide certain notices in a timely manner, including a new participant fee disclosure and investment mapping information. “There are two steps a participant should take during any conversion,” Decker says. “The first is to attend any of the new enrollment/conversion meetings offered by the company and new provider. Here, you can learn about key dates or deadlines, learn about the new plan features and hear how their investments will be mapped (this information is also in the notices).” The second, Decker adds, is to compare your final statement from the old provider (it will be zeroed out but show a total transferred balance) versus the statement from the new provider (which should show the same amount transferred into the new account).
Should I change my beneficiary forms? Ideally, it’s always a good idea to update the beneficiary form anytime a participant has a life-changing event such as marriage, death, divorce or the birth of a child. “But often if the old provider had online beneficiary forms, that information could be lost or invalidated,” Decker says. “Often times, participants won’t update their forms even when there isn’t a change in providers. Consequently, during any new conversion, participants must be certain to complete a new beneficiary form – either on paper or online – to ensure that their assets are directed as intended.”
No matter what happens, and what steps you take during a contribution plan change, make sure you re-evaluate the new plan and “make sure your investments are right for you,” says Dana Case, director of operations at MyCorporation.com, in Los Angeles.
Also, it’s important for plan participants to review fee disclosures to understand what fees are paid by participants versus any fees paid by the company. “It’s possible for a company to pass a larger percentage of plan expenses onto the participants, so carefully review the fee disclosures of the new plan,” says Kurt J. Rossi, president of Independent Wealth Management, in Wall, New Jersey.
Lastly, don’t be reluctant to ask all questions related to the 401(k) plan change. It’s your money and your retirement, so you have a right to know how the change impacts you — good or bad.
[See: 11 Ways President Trump’s Tax Plan Could Affect Americans.]
After all, you don’t want to look back years from now and wish you’d checked on plan changes, after the fact. So, take care of business now, and plan ahead when your 401(k) plan changes.
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6 Questions to Ask When Your Company Changes Its 401(k) originally appeared on usnews.com
