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When you aren’t happy with your 401(k) plan, it might be time to review other plans providers. Sound easier said than done? We get it—employer retirement plans come with a lot of moving parts, making it tempting to put off the decision to switch 401(k) plan providers. But with some careful planning, you can give your employees the best-in-class retirement offering they deserve.

When Switching Makes Sense
Offering a competitive retirement offering is critical to attracting and retaining employees. To ensure that it stays competitive, you’ll need to continually reassess your 401(k) plan and provider. Every year, grade your 401(k) provider on measurable criteria such as:

  • Cost
  • Participant engagement
  • Investment performance
  • Fiduciary and compliance support
  • Employee and administration services

Cost is often a major factor in the decision to move on, and for good reason. Many 401(k) providers charge employers and plan participants hidden fees. Investment, administrative, and service fees can quickly add up — as can those pesky 12b-1 and other fund fees that are only reflected in your investment returns. Not sure what those are? Neither do most of the employees that pay them. Guideline offers transparent pricing that doesn’t come with hidden costs.

Participant engagement should be something you think about. Is your provider getting people to enroll in your plan? After all, the goal of a retirement plan is to get individuals prepared for retirement. If very few people are contributing, maybe your dollars would be better spent on other benefits. Auto-enrollment is a way to ensure your employees are engaged and getting most out of the retirement plan you offer.

Another factor you may want to consider is investment performance. Remember, behind the scenes there’s a team of financial experts working to maximize your investment returns. While you probably shouldn’t switch providers solely because of short-term market volatility, if you aren’t happy with their strategy, investment diversity, or performance over the long haul, it might be time to explore your options.

Finally, consider the level of service and support you and your employees receive from the 401(k) provider. You need to be mindful of the full picture — from troubleshooting basic customer service issues to proactive compliance communications from your third-party administrator. You can also get employee input by including questions about your 401(k) plan in your annual benefits survey.

How to Switch Providers
Once you’ve landed on a new provider, you’ll need to break the news to your soon-to-be former vendor. While you might think that means terminating your existing 401(k) plan and starting anew, IRS successor rules require the transition to be more of a handoff, known as a 401(k) plan conversion. Depending on the two providers involved, the conversion could take anywhere between 60-90 days. While specific steps vary by provider, making the switch can generally be broken down into five steps.

1. Transfer assets to the new 401(k) provider.
In the financial world, an “asset transfer” refers to the moving of assets from one location to another. That’s precisely what happens in this step — your outgoing 401(k) provider will be handing off all plan information, including participant balances, loan information, and necessary documentation. Once you share your intention to part ways with your current provider, both vendors will work together to transfer that information.

Here’s an unfortunate but important thing to note about the entire process: Your outgoing 401(k) provider will probably charge you for offboarding. While that upfront cost might be discouraging, remember that you could potentially compensate for those costs in reduced fees and greater returns over time.

2. Restate or amend your plan document.
Your company’s retirement plan comes with an owner’s manual, also known as your plan document. This important piece of documentation lays the ground rules for how your retirement plan works. Some of the important details covered include:

  • When employees are eligible to participate
  • Vesting schedule information
  • Employer matching and/or profit-sharing details
  • How distributions are handled
  • Contact information for the employer and applicable third parties

You’ll need to share your current plan document with your new 401(k) provider. This will help them understand how your plan functions and guide the conversation if you want to make any changes moving forward. If you don’t, your new provider will keep the same provisions in your plan document.

3. Select your investments.
Next, you’ll need to work with your new 401(k) provider to settle on an investment lineup that best suits your business and its employees’ needs. The best practice is to offer a variety of investments such as domestic and international stocks, bonds, and cash investments that complement each other and can accommodate conservative and aggressive employee investors. You can also request environmentally-conscious options or ESG investments.

If you automatically enroll employees as part of your plan design, remember that you’ll also need to assign a “default” investment. These are called Qualified Default Investment Alternatives (QDIA).

If that sounds scary, take a deep breath. You don’t need a finance degree or Wall Street pedigree to switch 401(k) providers or design your plan. Many providers offer advisory services as well, with varying levels of involvement. You can learn more about the different kinds of financial advisors in our step-by-step guide to offering a 401(k).

4. Freeze retirement account changes.
Under normal circumstances, participants can update their contributions, make withdrawals, or request loans at any time. But when you’re in the middle of switching 401(k) providers, that kind of activity can complicate the behind-the-scenes work needed to make the handoff a success. That’s why switching requires you to go through a “blackout” period where employees can’t touch their retirement accounts.

Because blackout periods can last as long as two months, companies are required to give plan participants written notice at least 30 days beforehand, per IRS rules.

Guideline tip:
Stay mindful of your recurring compliance requirements, like Form 5500 reporting and nondiscrimination testing. These can get easily overlooked if you’re switching vendors midyear. For example, in order to file your Form 5500 (which is due in July for the year after you are filing for), your new 401(k) provider will need access to records that predate the start of your relationship.

5. Enroll employees.
Once the handoff is complete, it’s time to get employees enrolled. It’s worth organizing a series of presentations covering your retirement plan’s features (like profit sharing or employer matching) and how to use the provider’s technology. In some cases, these materials will be provided readymade by the new vendor.

In advance of your first post-enrollment payroll, you’ll also want to ensure that your payroll software is communicating with your new 401(k). If you use Guideline, your team will have access to integrations with leading HR and payroll vendors including Gusto, Rippling, Quickbooks Online, and Zenefits.


Switching 401(k) providers involves a lot of moving pieces, and the success or failure of the transition largely depends on the vendors involved.
Guideline has empowered over 10,000 small businesses to make the leap to a better retirement savings experience. To see how we can help your company, schedule a demo with a 401(k) specialist today.

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