Fund mapping 101: options for defined contribution plan conversions
As a retirement plan fiduciary under ERISA, making the decision to change providers requires due diligence. Once you’ve decided to switch, it’s also critical to make the transition prudently and with the participants’ best interests in mind, especially when it comes to transferring the plan assets. Get to know three ways of moving the assets from one plan provider to another, and how you can minimize disruption and even prioritize retirement readiness in the process.
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ERISA requires regular review of retirement plan service providers, including recordkeepers. Although this review often means a long relationship with your current provider is still appropriate, sometimes, due diligence may lead you to a new recordkeeper.
When you change providers, you may also decide to change the investments you offer in your lineup, either by changing them completely or broadening or narrowing down the choices. As part of this process, you’ll also need to decide how you want to direct current investments to be mapped to the new plan’s investments. Generally, there are three methods of transitioning the assets to a new defined contribution plan:
- Like-to-like fund mapping—also known as 404(c)(4) mapping
- Default to the qualified default investment alternative (QDIA)—also known as 404(c)(5) mapping or reenrollment
- Dual fund mapping
To help you decide which method to use, it can be helpful to consider the:
- Disruption to participants’ current investments/investment strategies
- Need for participant communication and education on the new investments
1 Like-to-like mapping
How it works—Like-to-like mapping is what it sounds like. This process assumes you’ll have the same types of funds with the new provider that you have with the current provider, and the assets will be transferred from the fund in the current lineup to the similar one in the new lineup, as in this sample portfolio.
Funds with the current provider |
Funds with the new provider |
Large U.S. equity index fund ABC |
Large U.S. equity index fund XYZ |
Large U.S. equity income fund ABC |
Large U.S. equity income fund XYZ |
Small U.S. equity growth fund ABC |
Small U.S. equity growth fund XYZ |
International index fund ABC |
International index fund XYZ |
Global equity fund ABC |
Global equity fund XYZ |
Emerging-market growth fund ABC |
Emerging-market growth fund XYZ |
Target-date fund ABC |
Target-date fund XYZ |
Target-risk fund ABC |
Target-risk fund XYZ |
This example is for illustrative purposes only and not reflective of any specific plan.
Potential disruption to participant investment strategies—This method is the least disruptive to a participant’s current allocation and strategy, as he or she remains invested in the same asset classes; however, it also doubles down on participant inertia and suboptimal investment choices, as 57% of retirement plan participants don’t feel knowledgeable about investments.1
Participant communication and education—If the funds are exactly the same, less education on the investment options would be necessary, and communications could focus more on process. If the funds are being mapped to new funds, communication and education will be needed to inform participants about the transition and the new funds.
2 Default to QDIA
How it works—With this method, participants are notified and given time prior to plan conversion to choose their investments with the new provider; if they fail to do so, they’ll be defaulted into the plan’s new QDIA. It’s also referred to as 404(c)(4) mapping because this method may be granted safe harbor protection if it meets ERISA requirements, as laid out in Section 404(c)(4).
30–60 days out |
Active election period |
At transition |
Notice is sent to participants |
Participants may choose their own investments |
Participants who haven’t chosen their own are opted in to the QDIA |
Potential disruption to participant investment strategies—This method could lead to a change in participants’ current strategies, unless they take action to choose their investments themselves.
Not only do many participants feel they’re not knowledgeable about investments, but many also choose allocations that aren’t in line with industry standards.2 Considering directing investments into a QDIA, such as a target-date fund based on their birth date, may be potentially beneficial for participants with poor investment knowledge; however, for participants who have purposefully chosen a risk-averse strategy, if they fail to select their own new investments in the given timeframe, they’ll be defaulted into a more traditional, and likely less risk-averse, allocation.
Most self-directed investors in all age groups are either over or under allocated to target equity ranges
Source: John Hancock 2022 State of the participant report, as of 12/31/21 from John Hancock's open-architecture platform.
Participant communication and education—To meet the safe harbor requirement, participants must be given 30 to 60 days’ notice of the option to choose their own investments or be defaulted to the QDIA. Because of the change in investments, additional education could also be helpful.
3 Dual fund mapping
How it works—Dual fund mapping adds a little personalization to the process. With dual mapping, plan fiduciaries have the option to map short-term holdings, such as cash, to a chosen fund and map the rest to the QDIA. For example, all holdings in cash or a cash equivalent could be mapped to a chosen capital preservation option, such as a stable value fund, with all other assets mapped to the new QDIA.
Example of dual fund mapping
Funds with the current provider |
Funds with the new provider |
Cash equivalents |
Chosen capital preservation fund |
All other assets |
QDIA |
Potential disruption to participant investments—This method may minimize the disruption to participant strategies with a chosen profile by helping to keep their allocation steady. As such, to continue the example, participants who have chosen a more conservative allocation would be able to maintain their strategy, and others would be directed to an investment that meets the qualifications of a QDIA, potentially helping with retirement readiness.
Participant communication and education—Participants would need to be notified of the coming changes and educated on their investment options.
As always, discuss your fund mapping options with your plan professionals
Making the decision to change providers has a ripple effect on the duties of a fiduciary, kicking more decisions into action for plan design and conversion, among others. One important consideration in the plan conversion process is how to approach transferring the assets. Although like-to-like fund mapping and defaulting to a QDIA are historically popular, dual fund mapping could also make sense for some plans, especially for participants who are nearing retirement or are risk-averse and who have purposefully chosen a conservative allocation. Dual fund mapping may allow them to keep their intentional stance, even amid a plan conversion. Each available method has positives and negatives that are important to discuss with your plan’s financial professional.
1 In December 2022, John Hancock commissioned our ninth annual stress, finances, and well-being survey with the respected research firm Edelman Public Relations Worldwide Canada (Edelman) . An online survey of 3,825 workers was conducted between 11/29/22 and 12/14/22 to learn more about individual stress levels, their causes and effects, and strategies for relief. John Hancock and Edelman are not affiliated, and neither is responsible for the liabilities of the other. 2 All data is from our open-architecture platform. 2021 data reflects John Hancock’s 1.5 million participants, 1,645 plans, and $112.9 billion in assets under management and administration (AUMA) as of 12/31/21. 2022 data is based on John Hancock’s 1.6 million participants, 1,716 plans, and $108.5 billion in AUMA as of 3/31/22. Earlier data is from our 2020 and 2021 State of the participant reports.
For complete information about a particular investment option, please read the fund prospectus or offering memorandum/trust document. You should carefully consider the objectives, risks, charges and expenses before investing. The prospectus or offering memorandum/trust document contains this and other important information about the investment option and investment company. Please read the prospectus or offering memorandum/trust document carefully before you invest or send money. Prospectus or offering memorandum/trust document may only be available in English.
Important disclosures
There is no guarantee that any investment strategy will achieve its objectives.
Neither asset allocation nor diversification guarantees a profit or protects against a loss. An asset allocation investment option may not be appropriate for all participants, particularly those interested in directing their own investments.
Although the target-date funds are managed for investors on a projected retirement date timeframe, the fund’s allocation strategy does not guarantee that investors’ retirement goals will be met. The target date is the year in which an investor is assumed to retire and begin taking withdrawals.
Stable value portfolios typically invest in a diversified portfolio of bonds and enter into wrapper agreements with financial companies to prevent fluctuations in their share prices. Although a portfolio will seek to maintain a stable value, there is a risk that it will not be able to do so, and participants may lose their investment if both the fund's investment portfolio and the wrapper provider fail.
It is your responsibility to select and monitor your investment options to meet your retirement objectives. You should review your investment strategy at least annually. You may also want to consult your own independent investment or tax advisor or legal counsel.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.
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