The 401(k) Consolidation Conundrum

By Patty Kujawa

Dec. 17, 2012

Nicole Cowley has held six jobs since graduating c­ollege in 2002. She also had six 401(k) accounts that went with the jobs.

Luckily, Cowley has an uncle in the financial business who helped roll most of her old accounts into an Individual Retirement Account. When Cowley took her latest job, in July, she decided to roll the 401(k) assets from the previous employer into the current one.

The rollover process had a few issues, she says. While filling out paperwork wasn’t too bad, forms got lost, and the check didn’t get deposited quickly. If it weren’t for her current job experience as a retirement plan education and communication specialist for Molewski Financial Partners, Cowley says she might have given up.

“I think this process is probably pretty difficult for most people because you have to know what you are doing” and how long things take, Cowley says. “There are a lot of places in the process that people might just forget the whole thing.”

Consolidating retirement accounts is typically a worker’s responsibility, but employers should make the job easier, experts say. Rolling money from former 401(k) plans could be good for workers and their companies, says Jeff Acheson, partner at Schneider Downs Wealth Management Advisors.

“If a plan is done right, pooling assets from former accounts should help plan sponsors realize better pricing structures,” Acheson says.

One of the largest drivers of total plan cost is the number of participants in a plan, according to the 401k Averages Book. Costs may be reduced if the funds in the plan increases, Acheson says.

For example, the 401k Averages Book—a tool many industry professionals use in benchmarking fees—shows a decrease in the total cost of plans when the number of participants remains the same, but assets increase. For example, a plan with 500 participants with $5 million in assets pays an average 1.56 percent total bundled cost (for administrative and investment management). A plan with the same number of participants having $25 million in assets pays an average 1.12 percent in fees, the 401k Averages Book reports.

“The larger a plan becomes, the better fee-negotiating ability it has,” Acheson says.

About five years ago, The Buckeye Ranch worked with Schneider Downs to encourage employees to consolidate their 401(k) accounts with their former employers. The Grove City, Ohio-based facility servicing troubled youths has the consulting group run financial education classes and offers individual sessions for employees interested in consolidating their old 401(k) accounts.

The first year that rollovers were available, about 10 percent of its workforce moved old accounts into Buckeye’s 401(k) plan, says Sherri Orr, Buckeye’s plan administrator and chief financial officer. As the program has grown, 110 additional employees and nearly $460,000 from rollovers are now in the plan. As a result of investments and rollovers, assets increased to $7.2 million in 2011, from $4.6 million in 2007.

“There are a lot of companies out there that don’t encourage employees to combine their old accounts,” Orr says. “The fee reductions we can get as an employer can be passed onto employees,” who typically pay for some or all of the management fees in 401(k) plans.

Sometimes rolling old assets into a current employer’s 401(k) plan isn’t a good strategy, says David Huntley, publisher of the 401k Averages Book. Workers who leave a larger company and move to a smaller one might not see a fee reduction. And although workers who might need a loan would be better off in a 401(k) where that option is available, many—especially younger workers—might be better off putting their old accounts into an Individual Retirement Account using indexed, lower fee-investments, Huntley says.

“If cost is the only issue, it’s difficult to find a 401(k) plan that has an all-in cost less than the 10 basis points you find in indexed funds,” Huntley says. “Everyone’s personal situation is so different.”

Patty Kujawa is a writer based in Milwaukee. Comment below or email

Patty Kujawa is a freelance writer based in Milwaukee.

Schedule, engage, and pay your staff in one system with