Top Five Questions You Should Ask About Your 401k Plan (updated 2021)

Fort Worth QDRO LawyerThe more information you know about your plan the better off you will be because your retirement plan account is very likely going to be one of your largest assets over the course of your life if not the largest. If you are new to saving for retirement or new to a plan this is a good place to start understanding your 401k. The plan’s summary plan description (SPD) should address these issues

Does the plan offer employer match and if so how is it calculated?

Many plans offer some sort of matching contribution from the employer when you make contributions from your own paycheck. Employers may offer a dollar for dollar match or may match a certain percentage, such as 50% on your first 5% of contributions.

Making sure you contribute at least enough to capture the full employer match is really important because it’s basically free money for you to take as long as you save for your own retirement. Not maxing out the employer match is like leaving vacation days unused at the end of the year. You earned the right to enjoy that benefit as part of your employment so you should capitalize on it and take the full value of your compensation package. The average employer match is 3%. A small amount of money on a regular basis but over time adds up.

Does your plan automatically enroll you at a certain point after you become eligible to contribute?

Congress changed the rules in 2006 to allow plans to automatically enroll new participants unless they opt out. That means you could suddenly start to see 401k contributions come out of your paycheck once eligible for the plan. Auto-enrollment is usually only at 3% which financial advisors suggest is too little to adequately prepare for retirement (but your finances may not allow for more right now) and you may not be contributing enough to capture all company match. Know whether you will auto-enrolled, when you become eligible for the plan and what steps you need to take to set up a different contribution percent or to opt out.

Does the plan offer any investment assistance and are there fees involved?

If you are new to investing you may find the plan’s investment line up daunting. Many plans offer some form of investment guidance to assist you. Some plans offer a management service in which an investment advisory firm makes the investment decisions. Generally you will pay a periodic fee or a small percentage of your account to cover the cost of management. Other plans have an investment adviser available for free who can advise you.

It is common for plans to offer guidance tools through a service provider that can help guide you towards appropriate investments for your risk tolerance and needs. They will not select the investments for you. Unfortunately, some plans will leave you entirely to your own devices. If the plan offers you free services there is no reason not to try them out. If you must pay a fee for investment assistance you should consider the fee amount and the benefits.

Does the plan allow you to roll in prior 401k plans?

If you have prior employers you may have one or more 401k accounts. Some plans allow you to roll those old plans into your new 401k plan; but a 401k plan does not have to allow it. Some plans allow you to roll in IRA accounts funded by money from a prior 401k plan. Rolling plans together makes administering your retirement savings easier by consolidating in one place. However, you need to consider whether your current plan charges periodic administrative fees when older plans do not. Also consider whether the investments available in your current plan are equivalent or superior to the investments in the other former employer plan or IRA.

What fees are charged by the plan and its investments?

Some plans will charge you administrative fees for certain transactions and/or routine maintenance fees. Virtually all plan investment offerings charge a fee, whether charged up front, when you sell, or continuously through your investment. These fees can sometimes be substantial and eat away at your retirement savings. As part of determining whether to roll old money into the plan and selecting investments you should consider the fees.

More 401k questions?

If you have questions about your 401k plan you should speak with an employment attorney experienced with employee benefit plans. Law firms dealing with 401k plan issues can help you understand your rights under the plan rules. You should discuss your questions with an attorney before making decisions. Often you cannot unwind your decisions with your 401k benefits so you are better off making the best decisions the first time.

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