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Switching 401(k) Providers: How to Choose the Right One

  • Employee Benefits
  • Article
  • 6 min. Read
  • Last Updated: 07/19/2021

employee considering switching 401k providers

Table of Contents

Most employers offer some type of retirement benefit, and even small businesses provide a 401(k) for employees to assist with long-term savings. A well-constructed 401(k) plan makes sense for many reasons, including tax advantages, employee familiarity, and an array of investment options. Switching 401(k) providers to better meet the needs of your small business and your employees may be daunting to undertake. Nevertheless, if your company's 401(k) is turning in lackluster performance or employees seem dissatisfied with the current offering, it may be time to consider switching 401(k) providers. Doing so includes key steps that we'll cover in this article, including:

  • Questions to ask before switching your 401(k) provider
  • 7 reasons your company would want to switch retirement providers
  • Benefits of switching 401(k) providers
  • How to choose a new 401(k) plan provider
  • Telling employees about the 401(k) provider switch

Questions to ask before switching your 401(k) provider

As you consider switching retirement plan providers, it's important to do your research and ask plenty of questions along the way. Here are some important ones to ask:

1. Can it reduce administrative time and cost?

One of the main reasons that employers don't sponsor a retirement plan is due to the misconception that it's too costly and complicated to set up and administer. The reality is that there are retirement service providers that offer affordable plans and management fees, a variety of plan design and investment options, and exceptional service to ensure your plan runs smoothly. Plan expenses and employer contributions are tax-deductible as well.

2. Is ongoing plan support available?

Make sure any provider you work with offers ample support both at the time of setup and on an ongoing basis — including participant enrollment materials and support, as well as regular plan sponsor support and communications.

3. How accessible is plan management?

Look for a plan provider that makes it easy to view and manage every aspect of your plan from your desktop or mobile device, including employee data, plan administration, documents and reports, and plan tips and tools.

4. Will my employees be able to easily enroll and access their accounts?

The enrollment process should be electronic and seamless for employees, minimize challenges for entry, and provide a wide range of educational resources in laymen's terms. This can include access to accounts through an online portal or mobile app, personalized quarterly statements, the use of a retirement calculator to check progress, and personalized investment advice from third-party experts.

Should you switch? 7 reasons your company would want to switch retirement providers

Switching 401(k) management is frequently a cost-benefit decision. If you're unhappy with your current plan and the employees are not using the benefit as much as intended, it may make sense to see what else is available in the marketplace. Even if you decide to stick with the same plan provider, understanding your options can help you negotiate the terms and fees of your current service provider agreement.

1. Your business' current retirement plan isn't flexible

Many business owners choose a traditional 401(k) because it's the only option their current service provider has offered, or because it's the most common type of retirement account, making it seem more familiar. If your current service provider doesn't offer multiple investment options, or they haven't clearly defined those options, you may want to consider switching 401(k) providers. Plans and features like a safe harbor 401(k), owner-only 401(k), SIMPLE 401(k) plans, and profit-sharing are all proven options, albeit less well-known than a traditional 401(k). The more flexible your retirement programs, the easier it may become to attract and retain talented employees who value retirement savings.

2. You've noticed poor performance of your investments

No one is happy when their 401(k) balance declines. Market fluctuations always occur, but well-diversified plans and wise investment choices should generate long-term returns in line with the benchmark. If you're comparing your company's retirement plan performance to competitors' options and noticing that your investment returns are consistently below average, you may consider changing 401(k) providers to achieve better overall performance.

3. You take on too much fiduciary responsibility

Does your current 401(k) provider offer services to help with the fiduciary responsibility for your plan? You may hear terms like "DOL fiduciary rule," "3(38)," or "3(21)" — all of which are tied to ensuring that investment decisions are made with the best interests of the participants in mind. Many providers offer fiduciary support services to help you and reduce your liability, either through their own advisors or through a third party. If your provider doesn't, you may want to consider switching 401(k) providers.

4. Your retirement plan fees don't match the value

The costs of a 401(k) plan can vary widely among service providers. As an employer, you should make time each year to review the fee structure of your plan and decide whether it still makes sense, given your employee utilization. If your fees seem higher than other plans, don't hesitate to question what value you're receiving in return. In some cases, switching 401(k) providers may help you bring fees down. With a lower-cost plan, you could be saving your employees money in the long run, which could help them meet their retirement goals.

5. Your business's 401(k) benefits can't integrate with your payroll

Payroll integration eliminates some of the manual processes that may cause 401(k) errors. If your 401(k) is connected to your payroll system, you avoid the need for separate tracking of employee contributions. The linked processes also eliminate computational errors and speed up the delivery of 401(k) information to your service provider. A good retirement services provider should include recordkeeping services that integrate with payroll systems to help reduce the administrative burden of maintaining a 401(k) plan and generate the reports needed to help you meet fiduciary obligations.

6. Your retirement provider doesn't have adequate data security

With so much of an employee's information stored online, retirement plan data security is of the utmost importance. If your current retirement plan hasn't supplied adequate documentation of their data security measures, you may want to reevaluate your provider. At the minimum, employers will want to make sure that service providers have a plan in place to store and protect participants' data and that there are procedures to follow in the event of unauthorized access.

7. Your employees are participating at a low rate

Low utilization can be a sign that your employees are unhappy with, or indifferent to the current 401(k) plan. Employee satisfaction surveys can help reveal why employees aren't participating in the plan. You may also use surveys to find out what employees want or expect from a 401(k). Once you determine what you need, you can then go back to your current provider and request changes — or look for another provider that can better meet employees' expectations.

Benefits of switching 401(k) providers

Switching 401(k) providers can offer benefits for both the business and employees. The right plan will result in added interest in retirement benefits, while enhanced performance will create additional value for your dollars spent. When you're interviewing potential retirement plan providers, make sure to ask how they will support you and ease the transition to a new plan. Switching to a provider that's a stronger fit for your organization can help you with the following:

Recruiting better employees

A solid retirement plan with many investment options is a strong recruiting tool. New features like employee self-service can attract tech-savvy employees interested in long-term investing.

Accessing more retirement plan options

Moving from a basic 401(k) to one with more choices allows for a better investment mix for a greater number of employees. If you're managing a multigenerational workforce, you're likely dealing with a wide range of risk preference profiles and investment time horizons that must be met within your retirement plan framework. Individuals in Generation Z may be looking for investments that build over decades, while baby boomers could want options to preserve their current wealth. New plan designs incorporating a Roth 401(k) or employee stock purchase options can also be added.

Matching your business culture

If you're a mobile, tech-heavy company, using a service provider that lacks a self-service app or a user-friendly interface won't be a good match. Choose a provider that can work with you to design a plan that employees are excited about and will fit in with your company culture.

Creating greater transparency

Including your employees in the process of selecting a new service provider and setting up a new plan can increase overall plan satisfaction. Rather than offer a plan that's been around for ages, taking the time to evaluate this important benefit and gather employee input will signal to your staff that you have their best interests at heart. They will also gain a greater understanding of how a 401(k) works and what it can offer.

Reducing costs

A new provider may be able to offer more streamlined processes at a reduced cost compared to what you're paying now to administer a 401(k) plan.

How to choose a new 401(k) plan provider

Once you've weighed all the options for switching, choosing a new provider takes thorough consideration as well. As you go about the process of choosing a new 401(k) plan provider, the following steps can help guide you through the process.

Step 1: Evaluate your company's needs

A 401(k) provider should align with and deliver the support you and your employees need. This includes customizing the right plan, choosing and monitoring investments, and providing support to employees. They should also be well-versed in providing retirement plans specifically for small businesses.

Step 2: Have a budget in mind and look for providers with transparent fees and costs

Inevitably, 401(k) plans come with fees for both employers and employees. What's perhaps more important to look for is full fee transparency and a true understanding of the return on these costs — service, support, and so on. Ask plenty of questions around a provider's costs, reasons for these fees, and use this information to compare providers.

Step 3: Understand how much fiduciary support you'll need

Plan fiduciaries are responsible for making decisions about the retirement plan that are in the best interest of plan participants when it comes to their retirement savings. You have a choice to either become the fiduciary or have a 401(k) provider take over some fiduciary responsibilities. This choice should be part of your consideration process. Ask yourself: How much help do you need, and what kind of assistance are you looking for? Do you need help administering the plan and its various compliance responsibilities? Are you looking to be hands-on, or are you looking to offload some administrative tasks, such as managing investments?

Step 4: Compare providers and make a decision

Once you've narrowed in on a few providers who align with your needs, ask for proposals, and evaluate each based on factors such as:

  • Level of service
  • Experience with businesses of your size
  • Quality and availability of investments
  • Whether the provider helps manage regulatory risk
  • Type of support for plan management
  • Type of support for plan participants

Step 5: Set up documentation and begin implementation of your new 401(k) plan

Once you've chosen a new provider, notify your current one. The two parties should be able to handle filing documents, setting up payroll processing, transferring assets, and re-enrolling employees. You will need to work with your new provider to establish your plan's fund lineup, confirm the services you'll be receiving, customize the plan (e.g., employer match or profit-sharing), and build a new plan document. While there are many moving parts at this step, a provider with experience working with businesses of your size can make the process as seamless as possible.

Telling employees about the 401(k) provider switch

When switching 401(k) providers, it's important to communicate with employees throughout the process. Employees must be given time to prepare for the switch and educate themselves on new investment options. Your current and new service providers should be familiar with the transition process and be able to provide the necessary communications and a suggested timeline. Consider including the following in your communication plan:

  • In-person meetings or livestream education sessions where employees are given an overview of the switch and an opportunity to ask questions.
  • Mandatory notices announcing the switch and deadlines for employee changes.
  • Emailed updates throughout the process.
  • A list of frequently asked questions on the 401(k) plan website or HR dashboard.
  • A slide presentation furnished by the new service provider discussing the new plan and how they will assist with transferring assets.

Evaluate your plan's fee structure and the amount of support you're receiving from your current provider. With the evolution of new 401(k) features and updated technologies, you may conclude that you've simply outgrown your current plan. If you decide to make a switch, it doesn't have to be a challenging experience. Ask the right questions, do thorough research on your options, and evaluate how implementing a new plan can ultimately help your employees and the business.


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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

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