How to switch 401(k) providers: A step-by-step guide for plan sponsors

If you’re reading this, you may have reservations about your current 401(k) provider—and that’s okay. It’s not unusual for companies to change their 401(k) provider from time to time or feel out potential alternatives. We’d argue it’s even best practice to periodically take stock of your current situation. You want to feel confident your plan is keeping up with industry best practices and that you and your employees are getting good value for your money.

So how do you go about it? In this guide, we’ll walk you through:

• Four criteria to consider before switching providers
• How to switch providers, step-by-step
• What to expect when switching your plan to Betterment at Work

Let’s start with a friendly reminder: Choosing a 401(k) provider is a fiduciary act, so you should carefully evaluate your options and clearly document the process. Even checking a few criteria can go a long way in that pursuit. Taken altogether, they can give you a better sense of whether you should make a move or stay put.

So if you haven’t read through your current agreement recently, now’s a good time to re-familiarize yourself and see how those terms stack up with the following criteria. It isn’t an exhaustive list by any means, but if you find they fall short in these criteria, it may be time to assess other options.

What fees should I look for in a 401(k) provider?

401(k) plan fees can be complicated, but we’ll simplify things a little by sorting them into three categories:

Plan administration fees

Plan administration fees are (in most cases) paid by you, the plan sponsor, and cover things like plan setup, recordkeeping, auditing, compliance, support, legal, and trustee services. 

Investment fees

Investment fees are typically paid by plan participants and are often assessed as a percentage of assets under management. They come in two forms:

- Fund fees, aka “expense ratios,” charged by the individual funds or investments themselves.

- Advisory fees charged by the provider for portfolio construction and the ongoing management of plan assets.

Individual service fees

If participants elect certain services, such as taking out a 401(k) loan, they may be assessed individual fees for each service.

Plan providers are required to disclose costs such as these, as well as one-off fees relating to events such as amendments and terminations—in fee disclosure documents. 

All in all, fees can vary greatly from company to company, especially depending on the amount of assets in their plans. Larger plans, thanks to their purchasing power and economies of scale, tend to pay less. While comparisons can be hard to come by, one source is the 401k Averages Book. You’ll just need to pay—ahem—a fee to access their data.

What level of support should your 401(k) provider offer?

Support can encompass any number of areas, but it really boils down to this: do you and your employees feel forgotten and left to fend for yourselves, or do you feel the comforting and consistent presence of a trusted partner?

The quality of service received by both groups—both you the plan sponsor and the plan participants—matters equally, so be sure to ask your employees about their experience. How easy is the provider’s user interface for them to navigate? Was it simple to set up their account and get started toward their goals? What kind of education are they being served along the way? One indicator of good participant support is when a majority of them are making contributions at healthy rates.

From the plan sponsor’s perspective, many of the same questions regarding setup and day-to-day operations apply. Crucially, however, your support should extend to matters of compliance and auditing:

• Are the documents provided for your review and approval accurate and timely?
• When you’ve needed to consult on compliance issues, do you receive clear and helpful answers to your questions?
• Does the provider deliver a comprehensive audit package to you if you need it and collaborate well with your auditor?

There’s also the question of payroll integration. Does your current 401(k) provider support it? How smoothly have things been running? Betterment at Work supports both 360-degree integration, where your payroll system and 401(k) system can send information back and forth, and 180-degree integration, where the data flows only one way, from your payroll system to the 401(k) system. If payroll integration is something you’re looking for in a new provider, be sure you understand these different levels of integration and which responsibilities you may retain.

What investment options should a 401(k) provider offer?

For starters, it’s worth thinking about the investment philosophy of your current provider and whether that approach aligns with the needs of your employee demographic. What sort of investment options and guidance do they provide your employees?

Some providers could offer only a handful of target date funds then call it a day. This could be less than ideal for several reasons. For one, target date funds adjust only for a single factor—time to retirement—rather than an individual’s risk appetite or planned retirement date.

If, however, an employee wants to customize their allocation according to their risk appetite, or if they plan to work past their retirement date, the target date fund may no longer be suitable for them. They're left to figure out for themselves how and where to invest. Contrast that with Betterment at Work, where our portfolios can be customized based on a participant's planned retirement date or their appetite for risk in general.

Betterment at Work offers a range of investment options, including ETFs and mutual funds, all designed for the long-term to help your employees save fortheir retirement goals. Learn more about our investment approach and how we build and manage portfolios.

Wherever your plan’s investment options land, you still have an obligation as a fiduciary to operate the plan for the benefit of your employees. This means it’s not about what you or a handful of managers want from an investment perspective, but what serves the best interests of the majority of your employees. 

Finally, one important consideration is whether the plan provider is an ERISA 3(38) investment fiduciary. A 3(38) fiduciary takes on investment selection and monitoring, so you don’t have to pick funds yourself. You remain responsible for prudently selecting and periodically reviewing the provider. We’ll touch on other forms of fiduciary responsibility in the section below.

What plan design features should you consider when switching?

Changing providers doesn’t mean terminating your 401(k) plan. In fact, plan termination comes with legal implications, including potential restrictions on establishing a new defined contribution plan within 12 months. Switching providers, on the other hand, can be a good opportunity to revisit your plan design. That might mean adding a Safe Harbor match or introducing features like automatic enrollment and auto-escalation, both of which Betterment at Work offers at no additional cost.

Of course, some plan features aren't optional. Under SECURE 2.0, most 401(k) plans established after December 29, 2022, are required to automatically enroll eligible employees beginning with the 2025 plan year, though certain exceptions apply. And starting in 2026, higher earners who make catch-up contributions generally must make them on a Roth basis. Make sure any provider you're considering can support these requirements and help your plan stay compliant as regulations evolve.

Now’s also a good time to know what level of fiduciary responsibility your current provider assumes and whether you’d want a new provider to have that same level of responsibility, take on more, or whether you’re comfortable taking on more fiduciary responsibility yourself.

In terms of investments, the provider may serve as the 3(21) fiduciary, which provides investment recommendations but leaves final decision-making authority—and the associated fiduciary liability—with you as the plan sponsor. Or they may serve as the aforementioned 3(38) fiduciary (like Betterment at Work), which assumes full discretionary authority over investment decisions and shifts that investment-related liability away from you. That said, even with a 3(38) provider, you still retain the responsibility to prudently select and monitor them in that role. Alternatively, they may not be a fiduciary at all.

In terms of administration, the provider may or may not provide 3(16) services (Betterment at Work does). A 3(16) administrator handles the operational and compliance side of the plan—things like Form 5500 filing, required participant notices, enrollment, and compliance documentation. There can be a wide range of functions that fall within that, so refer to your agreement to be sure you know exactly which services they are responsible for and which, by default, fall to you as plan administrator.

So you’ve done and documented your research and reached the conclusion that it’s time to make a change. What next? Better understanding the mechanics of a move can help you manage expectations internally and create reasonable timelines. Typically, changing providers takes at least 90 days, with coordination and testing needed between both providers to reconcile all records and ensure accurate and timely transfer of plan assets.

Once you’ve identified your chosen successor provider and executed a services agreement with them, high-level steps include:

1. Notify your current provider of your decision. You may hear them refer to this as a “deconversion” process.
2. Establish a timeline for asset transfer and a go-live date with the new provider.
3. Review your current plan document with the new provider. This will give you the chance to discuss any potential plan design changes. Be sure to raise any challenges you’ve faced with your current plan design as well as any organizational developments (planned expansion, layoffs, etc) that may impact your plan.
4. Set up the investments
5. If your new provider is a 3(38) investment fiduciary, your role is limited to prudently selecting and monitoring the 3(38) provider, which makes and documents the fund selection and monitoring decisions.  monitoring.
6. If your new provider is NOT a 3(38) investment fiduciary, then you’ll have the responsibility for selecting funds for your plan. The plan provider will likely have a menu of options for you to choose from. However, this is an important fiduciary responsibility, and if you (or others at your organization) do not feel qualified to make these decisions, then you should consider hiring an investment expert.
7. Review and approve revised plan documents.
8. Communicate the change to employees (including required legal notices, as well as the blackout period—more on that below), with information on how to set up and access their account with the new provider.
9. Wait through the blackout period. The blackout period is a span of time—anywhere from 2 to 4 weeks depending on your old provider—when employees can’t make contributions, change investments, make transfers, or take loans or distributions. Participants’ accounts are typically still invested up until the old provider liquidates them and sends them to the new provider. From there, they’re re-invested by the new provider. Outstanding loans are typically transferred, though this depends on both providers.
10. Confirm the transfer of assets and allocation of plan assets to participant accounts at your new provider.

As you can see from the steps above, switching 401(k) plan providers isn’t as simple as flipping a switch. But that doesn’t mean some providers don’t make it easier than others. We pride ourselves on streamlining the process for new clients in a number of ways:

• As a 3(38) fiduciary, we take on responsibility for selecting and monitoring the plan’s investments. 
• We also create accounts for eligible employees and participants, saving them the hassle.
• You can track the entire onboarding process, meanwhile, in your employer dashboard.

Regardless of whether you end up making a switch, we hope the criteria above helped you take better stock of your current 401(k) offering. Before, during, or after that decision, we’re here to help.