Selecting Your Company's 401(k) Provider

There are many reasons you may consider making a 401(k) provider switch, like the opportunity to get better service or find a better deal. For some, it’s about gaining more personal benefits from the plan, or attracting higher-quality talent. If you’ve been considering a change for the benefit of your business
and/or your employees, here’s a quick walkthrough of how to switch 401(k) providers.

Step 1: Evaluate Your Top 401(k) Provider Needs

Small and mid-sized employers have unique needs when it comes to 401(k) plan management. Business owners need plenty of support to make sure they pick a plan that benefits themselves, their business, and all of their employees. You shouldn’t settle for poor service at the expense of your and your employees’ retirement readiness—which is one of the main reasons employers switch 401(k) providers.  Consider the following aspects of 401(k) management and engagement:

• Evaluate the level of support your business needs. You may have many options when it comes to finding a provider. Perhaps your payroll provider offers a 401(k) plan, or your insurance broker. But how much of their business comes from administering retirement plans? Do they have experienced professionals who know enough about investing to help you make responsible decisions? Perhaps most importantly, do they know what it takes to serve a small business? A good small business 401(k) adviser can offer help that’s specialized to your needs as an employer with everything from customizing the right plan for your business, to choosing and monitoring investments.

Many types of companies offer 401(k) plans, but not all of them concentrate on helping small businesses and their employees with retirement. You may find that switching to a specialized 401(k) adviser can get you more of the service you need to feel confident in offering a truly valuable benefit to your employees.

• Evaluate the support and education your employees need. In a nationwide survey of small businesses, we found that two-thirds of small business employees are not very satisfied with the service they get from their employer’s 401(k) provider. Nearly 90% of employees don’t feel confident about their retirement, and 69% don’t understand the basics of a 401(k).¹ With this in mind, the top of your priority list should feature plenty of employee support, including in-person meetings with retirement specialists to help employees make good decisions, and ongoing access to those specialists and other online tools.

Speaking of your employees, there’s also evidence to suggest that small business employees have unique needs. One-in-four small business employees doesn’t know if their retirement account is on track. But your employees likely want help; 66% say that “strong plans” help bolster their loyalty to the company.

You can further evaluate your current service provider with our Adviser Report Card tool.

Step 2: Looks for 401(k) Providers with Transparent Fees

Of course, with a need for specialized 401(k) education and support for your employees comes a need to pay for that service. A big part of 401(k) plan management is making sure the fees you and your employees pay are reasonable in relation to the level of service you receive. That’s only possible if you understand your fees in the first place—which is easier with some 401(k) providers than others.

While there’s no one right way providers might charge fees, it’s important to look for a provider who will be 100% transparent about every dollar charged to you and to your employees. Ask a potential 401(k) provider for a full accounting of who would be getting paid, how much they’ll receive, and where that money comes from. That way, you can get a true sense for the cost of a 401(k) provider’s service and more clearly compare them to other providers.

For example, you may find that one provider can offer much more in the way of employee education and support, and that might bring with it a higher price tag. That’s reasonable if it’s truly in the best interests of your employees. What may not be reasonable is choosing a provider with higher fees over another option that offers a very similar level of service at a lesser expense.

In any 401(k) plan, there are fees paid by the employer and by the employees to cover various service providers working on the plan. Ask for complete transparency on fees, then make a decision for the best balance of cost and service. Document your reasons for choosing the provider and why you believe they will offer your employees the best opportunity to save, invest, and prepare for retirement.

Step 3: Get the Right Level of Fiduciary Support

When you offer a 401(k) plan to your employees as an employer, you take on the role of a “fiduciary” for the plan, which means you have a personal, legal liability to make good choices on behalf of your employees. It’s a big responsibility, but it’s one that some 401(k) providers can share. Before you review potential 401(k) providers, ask yourself what kind of help you’ll need. Will you want support in administering the operations and compliance aspects of the plan? Do you want recommendations when it comes to the plan’s investment lineup, or would you prefer a more hands-on partner who can actively manage investments and reduce your fiduciary risk? Tell potential providers what you need in the way of fiduciary support and make sure their capacity to provide that support aligns with your needs.

Step 4: Compare Your Top 401(k) Providers

Now that you’ve chosen a few 401(k) providers that you feel have reasonable fees, the right level of fiduciary protection, employer support, and employee education, the next step is to compare those providers side-by-side. Start by reviewing provider websites to see what they can offer you. Keep this list of questions handy to help you evaluate whether or not a provider will be a good fit for your company:

• Does the adviser specialize in small business 401(k)?
• Does the adviser manage and/or recommend high-quality investments?
• Will the adviser help manage your legal and regulatory risks?
• Does the adviser provide dedicated support for running the plan?
• Will the adviser provide personalized, one-on-one support for your employees?

Focus in on a few providers who seem to align with your needs as a small business, then meet with them to ask these questions. Ask for proposals from the top providers you speak with and compare them side-by-side for a clear understanding of the level of service each provider will offer. For more tips on creating clearer guidelines for what you’d like from your 401(k) provider, read our article on evaluating a new 401(k) provider.

Step 5: New 401(k) Implementation, Blackout Period, Fund Lineup & Employee Communication

Converting to a New 401(k) Provider

Once you’re ready to make a switch, notify your current provider. On an administrative level, your old and new providers may be able to process much of the work between the two of them, including filing documents, the setup of payroll processing, the transfer of assets, and the re-enrolling of your employees. At the same time, you’ll work with your new provider to set your plan’s fund lineup, to establish the exact services you’ll be receiving, to customize your 401(k) plan (will you be offering an employer match, for example, or adopting a profit sharing provision?), and to build a new plan document. From start to finish, this process could take anywhere from three to six months to complete—but if you choose a new provider that specializes in small business 401(k), they should be able to take the lead and make it as easy as possible for you to upgrade your 401(k) with a smooth start.

While you undergo this process, it’s important to keep in mind a few important timing aspects:

Billing Schedules

Some 401(k) providers bill quarterly, whether you’ve been with them for the entire quarter or not. If this is the case with your new provider, you may want to work to align your new plan’s start date so you don’t overpay for services in your first few months.

Fund Lineup Changes with a New 401(k) Provider

When you switch to a new provider, you’ll also have a new fund lineup to choose your investments from. When you compared 401(k) providers, you looked at two things related to the fund lineup: the quality of the fund lineup, and the level of support that the adviser will provide your employees. It’s helpful to have an adviser who can communicate the differences between funds in a way that’s easy to understand and personalized to your employees’ unique needs.

Communicating with Your Employees About a 401(k) Provider Change

At the end of this process, your hard work will result in a better partner for you and your employees. Choose a provider who won’t make you settle for less help than your business needs at a higher price than you and your employees should pay.

When you communicate the switch to your employees, be sure to get clarity around blackout dates during which your employees won’t have access to either their old or new 401(k) accounts. Request help from your new provider communicating this to your employees along with anything else they’ll need to know about re-enrolling. It may be the case that your employees will be automatically re-enrolled if they don’t opt out, or your new provider may offer in-person support to help your employees set their savings rates and choose their new investment strategy.

Your new adviser may have materials they can give to you and your employees to read up on any added benefits to the new plan, how it’s different from the old plan, and what changes they can expect when your new adviser visits your worksite. Clear communication helps keep your employees informed and empowered, and learning about the plan may give them an added incentive to participate (if they aren’t already) or increase their contributions.

In the meantime, if you need more help understanding your responsibilities and making good decisions for your employees, our resource library offers a wide range of tools and resources to help you change 401(k) providers with confidence.

¹Fisher Investments 401(k) Wellness in the Workplace Survey