5 Questions to Ask a 401(k) Plan Provider Sooner Rather Than Later

Employees often find themselves confused and frustrated with making changes to their 401(k) because complex terminology is difficult to understand.

Other 401(k) investors follow a buy and hold strategy and may see changes as unnecessary. 

The bottomline is that it’s critical to your retirement savings (and your future retirement lifestyle) to understand exactly what you are enrolled in and why. 

This begins with asking questions–the right questions. Here are 5 questions you should ask your 401(k) plan provider sooner rather than later. 

#1 What Are My Investment Options Other Than Target Date Funds? 

 questions to ask a 401(k) plan provider

Many companies’ 401(k) plans use target date funds (i.e., 2030, 2040, or 2050 funds) as their default option, automatically enrolling employees in them. 

They can do this thanks to the Pension Protection Act of 2016, which allows employers to direct plan participants’ assets into a target date fund and not be liable should the employee not select an investment.  

According to Marketwatch, “About 70% of U.S. companies automatically enroll employees into 401(k)-type plans, and more than 86% of these firms now direct people’s money by default into ‘target-date funds’ (TDFs).”¹

Target date, or lifestyle, funds are supposed to automatically adjust account allocations throughout life. 

Investors are grouped solely based on their expected retirement date. This means target date funds do not take into consideration an investor’s…

  • Location
  • Profession
  • Salary
  • Risk tolerance
  • Retirement goals and objectives 

 questions to ask a 401(k) plan provider

The reality is that target date funds will often underperform in good markets and do a poor job of managing downside risk during tough markets.

A recent article indicated that, on average, target date funds invested 75% in common equity, generating average losses of over 30% during the 2008 financial crisis. 

Investors planning to retire in 2010 suffered significant losses because 2010 target date funds increased their common equity exposure in 2007

According to Morningstar analyst Jeffrey Holt in March 2018, In the long run, the biggest risk in target-date funds is that they won’t meet investor expectations for avoiding losses.”³

The good news is you don’t have to stay with the default option. 

Now that you know why you might should avoid target date funds, the first step is to find out if you were automatically enrolled in a target date fund or not. 

If you are, then, your second step is to find out what other 401(k) investment options are available to you.

Check out our guide 5 Ways Target Date Funds Fail to Live Up to Their Promise.

#2 What Is the Cost of My 401(k) Investment Options? 

 questions to ask a 401(k) plan provider

One way to help maximize your returns is to keep your investment costs low. 

Many investments charge a fee in exchange for professional management services. And these fees can get pricey. 

If you want to know how much of your return is deducted for the investment’s annual  costs, ask your 401(k) plan provider for an expense ratio for each option. 

#3 How Do I Change My 401(k) Investments? 

 questions to ask a 401(k) plan provider

Over time your needs will change, as will the market. 

Therefore, it’s important to know how you can adjust your account allocations. 

Make sure to ask the following questions of your 401(k) plan provider

  • Can I do this online? 
  • Do I have to go through your plan provider or fill out a form? 
  • How often am I able to make changes? 

We recommend rebalancing your account allocations each quarter because, contrary to popular belief, a set-it-and-forget-it strategy may often do more harm than good. 

If you aren’t rebalancing your account allocations, you may be missing out on earning more and keeping more of your hard-earned retirement savings

Because unmanaged allocations may experience much larger losses in down markets and may miss the opportunity for growth during good markets. 

[Related Read: What Every Investor Needs to Know about Rebalancing a 401(k)]

#4 Will My Employer Make Changes on My Behalf throughout the Year?  

 questions to ask a 401(k) plan provider

It doesn’t matter what plan you have or what you’re invested in, the answer is No

Your employer cannot make changes to your 401(k) for you. 

It’s your money and up to you to make changes. 

In addition, should you leave your employer and leave your 401(k) behind, your employer cannot and will not make changes to it on your behalf. 

While you may be able to leave your 401(k) account with your previous employer, there are several disadvantages to doing so:

  • Your account will remain subject to plan rules.
  • You will continue to have limited investment options.
  • You will have another account to keep up with.

A better option would be to roll your old 401(k) into your new employer’s 401(k) plan, providing it’s allowed, or roll it into an IRA. 

Before you make your move, click here to discover the 5 Costly 401(k) Rollover Pitfalls.  

#5 Can I Verify Changes in My Investment Menu?

 questions to ask a 401(k) plan provider

It’s not only important to know to make changes to your investment menu, but also you need to know how to review and verify these changes to ensure they’re accurate. 

If you are able to verify online, make sure you have access to this information and understand what it is that you’re looking at. 

Get Professional 401(k) Account Management Every Quarter

 questions to ask a 401(k) plan provider

401(k) Maneuver exists to help employees grow and protect their 401(k) accounts. 

And we do this without in-person meetings so you don’t have to drive to an appointment or spend hours preparing for the meeting.

Our done-for-you, virtual service allows you to keep your 401(k) right where it is while we review and rebalance your account based on your risk tolerance and current market conditions. 

It’s all done online. 

 questions to ask a 401(k) plan provider

As a fiduciary, we are bound by law to put your interests first and we do not receive commissions on the trade. 

Click below to book a complimentary 15-minute 401(k) Strategy Session with one of our advisors today.

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  1. MarketWatch, Opinion: Target-date funds are more expensive and less effective than this simple investment plan, February 20, 2019
  2. The Global Financial Crisis and the Performance of Target-Date Funds in the United States – October 1, 2011
  3. Special Report: Fidelity puts 6 million savers on risky path to retirement, Reuters.com March 5, 2018
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