Asked by Lynn  |  Submitted October 16, 2013

Is it legal for my employer to move my 401(k) account balances into other investment funds, or change investment managers?

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  Answers  |  2

October 16, 2013

The short answer is YES. The Employer is the sponsor of the 401(K) plan and most likely a fiduciary as well. They can decide to change the line up of investment options and managers in the plan. If and when they do, they will move your account balances from your current managers to broadly similar new managers. However, they have to do this for every one who is in the plan.

Hope this helps.

$commenter.renderDisplayableName() | 01.23.21 @ 05:33


October 16, 2013

Your employer-sponsored plan is required to provide notice to participants when there are changes to the plan. This is often done by letter or email to participants. Most often these are perfunctory communications and most people tend to overlook them.

The plan sponsor is the trustee and responsible to do what is in the best interests of the plan's beneficiaries. This fiduciary standard legally binds the trustee.

An employer may change plans for a variety of reasons. One motivating factor may be administrative costs (running a plan is not free even if you as a participant don't see the costs deducting from your account). Another may be the risk-adjusted performance of the funds in the plan compared to those offered through another platform.

When an employer goes through the process, they typically will rely upon the input from the investment adviser and for larger plans there will be a more formal investment review process measuring the pros and cons of all of these factors.

When the decision is made to change over, the new 401(k) administrator and investment adviser will work to 'map' existing fund positions to a close corollary in the new line up. They may not be exact but they will be close relative to risk, objective and investment type.

On a related note, employers are encouraged to include default options that offer participants an easier way to invest and manage their expected age-based risk. So you'll tend to find "target date funds," funds which automatically include a diversified allocation of varying types of investments that cover the full range of choices (large/small, US/international, stock/bond).

This is far different than the past (before the Pension Protection Act of 2006) when employers automatically placed money in a money market account by default if the participant hadn't made a choice.

All that being said, you may not be happy with the choices or the line up. As a participant, you have the right to let your feelings be known by the trustee. Check out the Summary Plan Documents that are produced which will provide you with details about the plan including contact information.

Because of the costs associated with a plan conversion to a new administrator platform, you won't likely change to another administrator but you may be able to get additional choices added to the line up.

$commenter.renderDisplayableName() | 01.23.21 @ 05:33