I graduated with my bachelors degree about 7 years ago now, and I have since been employed with four different companies. I left three of those companies of my own accord, and another due to cutbacks. Regardless of my reason for leaving, each time I started somewhere new there was a mound of paperwork to do, and multiple accounts to transfer. I’m pretty lazy when it comes to just about anything outside of work, and paperwork is no exception. So it shouldn’t be a surprise that I’m quite content letting a portion of my 401k savings sit within my previous employers plan, but there are strategic reasons behind this as well.
Leaving a portion of my 401k savings in my previous employers account obviously takes less effort than if I spent time filling out the paperwork and moving it. However, I also have access to the Fidelity Target funds, which diversifies and allocates your investments based on your estimated retirement age. I know many of you have your opinions on these funds, but like that old informercial use to say, I can “set it and forget it”. Quite honestly, I’m into just about anything that simplifies my otherwise busy life.
Plan fees are another area you need to consider. 401k plans are not run by non-profit organizations, there are administration costs to you and your employer. I work for a very large corporation, and I still pay some nominal annual fees. However, my previous employer is still picking up the entire tab for my 401k plan fees, either they aren’t checking closely enough, or they simply pay the entire amount owed regardless of who is invested in their plan. I continue to earn money on this account, and pay nothing for it.
As I stated in my first reason, I like to invest in the Fidelity Target fund, an option I don’t have with my current employer. But my reasoning goes well beyond this convenience, it’s also a matter of diversification. 401k diversification goes beyond the allocation of your investment in a single plan. At one point I actually had three different 401k accounts, and it took me nearly a year to transfer my third one. Why you ask? Because I had lost so much money in that plan during the recession, that I refused to buy high and sell low. Instead, after my account was depleted 70% following the market bust and subsequently hit rock bottom, I watched it sky rocket month after month. In fact, the investment options in that account had done so well, I still haven’t seen anything like it in my current 401k accounts.
If you leave your company for a new one, be smart, perform your due diligence, and see what choice makes the most sense for you. If you’re lazy like me, seeing great returns, paying low-to-no fees, or crave investment diversification, then maybe you should just leave that 401k account where it is.