How to Switch 401(k) Providers

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. 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 Small Business 401(k) Needs

Small and mid-sized employers have unique needs when it comes to 401(k) plan management. It’s no secret that employer and employee alike need plenty of support to make sure they pick a good plan and use it well. You shouldn’t settle for poor service at the expense of your—and your employees’—retirement readiness. Consider the following aspects of 401(k) management and engagement and document your company’s requirements from a 401(k) partner:

• Could you benefit from a specialized small business 401(k) adviser? 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. Make note of the specific help you’re looking for, from administrative support to help choosing investments to fiduciary services that share your legal liability.

• What kind of support and education do your employees need? We’ve found that two-thirds of small business employees are not very satisfied with the service they get from their employer’s 401(k) provider, and 75% of employees say their provider does not help them feel in control of their financial future.1 This is reflected in the results of our 401(k) quiz, which tested knowledge of 401(k) facts—7-out-of-10 employees failed! 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.

Step 2: Compare 401(k) Providers

The next step in finding the service you and/or your employees need is to compare 401(k) providers. 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 a more in-depth guide to reviewing providers, download our resource: 3 Steps to Selecting Your Company’s 401(k) Adviser.

Step 3: Make Sure 401(k) Service Provider Fees are Reasonable

As an employer, you have a fiduciary obligation to make good decisions on behalf of your employees when it comes to managing your plan. That means giving them the tools they’ll need to succeed at a price you deem to be reasonable. In reviewing the proposals you have from the different providers you’ve interviewed, don’t focus only on getting the cheapest plan you can, but rather compare the level of service each provider can offer—and at what price point. 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 4: Initiate the 401(k) Provider Change

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 employer match, for example, or adopt 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:

• Employee communications: First, 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.

• 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.

Make Your 401(k) Provider Switch with Confidence

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. 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.

Call to schedule a 20 minute plan review: 844-237-9245


1 Fisher Investments 401(k) in the Workplace Poll, page 7

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