Switching recordkeepers might seem like a straightforward administrative move, but when things go sideways, the consequences can be severe. A recent lawsuit against a Florida automotive group shows just how much can go wrong—and why plan sponsors need to stay engaged throughout the entire transition process.
In a recent article, ERISA attorney Ary Rosenbaum of The Rosenbaum Law Firm P.C. broke down the case of Rick Case Enterprises Inc., which allegedly lost roughly 9% of its 401(k) assets during a conversion from Empower Retirement to Principal Financial Group in late 2022. During the transition, participants were placed in a blackout period and couldn’t access or change their accounts. When assets arrived at the new recordkeeper in early January 2023, participants said their balances were significantly lower than before. For one participant invested entirely in a stable value fund—designed to preserve principal—that kind of drop made no sense.
The problems didn’t stop there. According to the complaint, participants received conflicting communications. Some were told a “market value adjustment fee” applied; others were told missing assets would be returned. But no one received documentation or reimbursement. On top of that, participants said their assets were supposed to default into age-based target-date funds, as documented in the plan. Instead, they allege funds were placed into a “diversified mix of mutual funds” that didn’t match the plan’s stated default investment rules.
This case underscores a hard truth: A recordkeeper switch is one of the highest-risk events in a plan’s lifecycle. It’s not just a vendor change—it’s an operational undertaking that demands careful oversight at every step. Blackout periods need to be communicated clearly. Assets must be transferred accurately. And fiduciaries can’t assume everything is being handled properly just because a provider is managing the process.
So what should you take away from this? First, document every aspect of the transition—blackout communications, transfer validation, reconciliation procedures, and participant access protocols. Second, audit the results once the conversion is complete. Did every dollar arrive? Did every participant land in the correct investment? Were communications accurate and consistent? Third, stay engaged. Handing off the process to a vendor and assuming everything will go smoothly without sufficient oversight creates unnecessary risk.
These kinds of failures don’t just result in lawsuits and potential ERISA breaches. They damage trust with participants who are counting on their employer to protect their retirement savings. And once that trust is broken, it’s hard to rebuild.
So if you’re planning a recordkeeper switch, treat it like the high-stakes event it is. Your participants—and your fiduciary duty—demand nothing less.
