10

My company is about to change the 401k provider it uses from one major provider to another. Does this matter to me, provided my company doesn't change any of it's benefits policies?

10

Yes. It may change the investment options you have available and almost certainly will change the fees that get charged to your account.

On the other hand, you probably don't have any say in the matter, so it isn't worth stressing about.

BTW: Don't bother looking at your statements for these fees, they are usually hidden in the difference between the funds prices you pay and the market prices for those funds. Personally, I think the lack of transparency on those fees is downright criminal.

  • 2
    I thought the fees in 401(k)s usually came out of your return-on-investment on the mutual funds offered. (e.g. the market's up 8% but your account's only up 7%.) – user296 Apr 27 '10 at 21:11
  • You might be right about that. I couldn't remember exactly if they got you coming or going, but either way they wind up getting theirs in a pretty sneaky way. – JohnFx Apr 28 '10 at 0:31
  • Many funds these days are going for 'no load' and choosing to make up the difference through expense ration, which affect NAV, or what you can sell for later. – jldugger Aug 22 '11 at 4:40
3

There's probably nothing you can do about the company's decision to switch providers, but I'd watch out for a number of things:

1. Fund mapping. Say you have 30% of your balance in a large-cap US stock mutual fund with Provider A. Provider B has a large-cap US stock fund too, but a different one. When the transfer takes place, they will sell your shares with Provider A and use the proceeds to buy shares with Provider B. The new fund may be of about the same quality, worse or better. It is definitely a good idea to revisit your 401(k) allocation, look at the new investment options - some may be good, some may be lemons - make sure you stay away from the lemons.

2. Timing of the transfer. The transfers are often done by having Provider A sell all mutual fund shares held in the 401(k) plan, then Provider A wires the money to Provider B, then - a few days later - Provider B uses the money to buy you shares in the new mutual funds. If everything is not done in a single day, what happens if the market goes up/down? If it goes down, the plan participants win, because the same amount of money buys more shares. If it goes up, you lose. By Murphy's Law, the market usually goes up on such days :-)

If the market goes up, let's say 2% in the middle of the transfer and your employer switches 401(k) providers every 3 years, that's like adding 0.67% to your expense ratios. This is something not to be taken lightly. Ask your benefits administrator how the transfer will be handled, whether it will be done in one day, and if not, if Provider B has some kind of insurance that will make the participants whole in case the market goes up in the middle of the transfer.

3

As everyone has mentioned above, it does: 1. investment options 2. potential new fees.

Some of the worst cases I've seen is when an employer had used B share mutual funds (remember those nasty suckers?) or an annuity product. In these cases the employee had to pay the surrender charge to switch. Completely wrong, IMHO.

2

Yes it does matter and one very important place it matters is in the fee schedules for the investment funds.

In general the fee schedules from one place to another are comparable for index funds, however things are very different for managed funds .

Consider the fact that a difference of just 1% or 2% in the fee schedule could amount to hundreds of thousands of dollars in lost income before retirement.

Contrary to what you might think, you do have input to the situation. Gather the data on the fee schedules. If the new fee schedule is much higher than alternatives take this data to your HR rep in-charge of these decisions. Explain the math to them and show them the numbers for what happens with a higher or lower fee schedule. Remember they are in this with you since their 401k is affected just the same as yours by high fee schedules.

1

The provider DOES matter, but you don't have a lot of control over it so I wouldn't worry too much.

However, for information and comparisons sake you may check Brightscope (http://www.brightscope.com) since they do an awesome job analyzing 401(k) plans from different companies and different providers and showing the impact of fees and investment policy changes by the different plans on your account.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.