In the past year, many of our clients have seen changes made to their 401(k) plan. These changes may happen from two separate businesses merging, your employer trying to save costs, or simply a change of funds within the existing 401(k). Usually, you will get either an electronic or written notification of these changes. The problem is that most 401(k) participants usually don't take the time to read the changes which can affect the overall performance of your largest retirement asset. Here are three things to watch out for when a major change gets made to your 401(k) plan.
- Be aware of the mapping process - The idea of having a map or a Garmin is to get specific directions on the most efficient way to get from point A to point B. When your existing 401(k) plan merges into a new 401(k) plan it will go through a process called mapping. What generally happens is that the new 401(k) provider will offer mutual funds that most closely match the existing mutual fund positions you have today if you do NOTHING when the change happens. Remember, you have the opportunity to review and select a set of new funds based upon the new choices in the 401(k) plan. However, if you elect to make no changes at all your existing 401(k) will automatically be redistributed into like kind funds. I stress the word like kind because the funds will not likely be exactly the same nor will the funds necessarily have the same exact fund manager. It is important when these changes happen that you reassess each and every choice within the new 401(k) plan.
- Be aware of the blackout period - When a complete overhaul happens with your 401(k) from your old plan to a new plan, it will go through something called a blackout period. This is a period of thirty days where you won't have the ability to make any changes to your current overall investment mix. With today's extremely volatile market, you could consider moving your entire balance to a money market or stable value choice if you feel uncertain about market volatility during that period of time. If you are not confident in what choices to make with the new funds, creating a more conservative mix of your 401(k) will also allow you time to make more informed choices within the new plan.
- Be aware of a fund manager change - Remember, that each mutual fund within your 401(k) plan is either run by one manager or a team of managers. Some funds over time develop a very consistent track record of performance. However, if there is a change of managers on the mutual fund the historic performance may not represent what might happen in the future. When you analyze your mutual fund selections you should not only look at the track record of the fund (which many people do), but you should also look at the tenure of the fund manager to see if there is a match.
As I've shared before on Your Smart Money Moves, not opening your 401(k) statement is likely a poor way to plan for your financial future. Since changes are happening more frequently with your 401(k) plans, you need to think like a CEO and analyze those changes so you can come up with the best outcomes for your money.
Contact Ted Jenkin at www.oxygenfinancial.net to request a free review of your 401(k) plan.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder of oXYGen Financial, Inc
Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice and Smart Money Moves to the X and Y Generation.
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