Left a job? Do a rollover.

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I saw this poster on the window of a store-front brokerage firm office near the grocery store.  Although the firm in question has an obvious self-interest in getting you to consolidate your investments with them, the underlying message is a good one.

As long as you keep working for your employer, you generally don't have the option to move your 401(k) money.  But, with the economy the way it is, there's a steady supply of people with former employers.  In most cases, if you leave your employer, you'll want to roll your retirement savings out of your employer's plan and into a "rollover IRA."  (A rollover IRA is an ordinary IRA, except that the fund manager keeps track of the fact that the source of the money is from a rollover, which preserves your ability to roll it into a future employer's 401(k), if you want to.)

Reasons to move

There are a lot of reasons to move your 401(k) (or other similar account) when you leave your employer.

Customer service

The biggest is simply that your ex-employer isn't interested in providing a service to you.  They may be perfectly happy letting you leave your money in the plan--that spreads the costs of the plan over that many more dollars--but they're not in the business of providing customer service to ex-employees.  

They're not really in the business of providing customer service to their current employees either, but they are constantly looking for the cheapest way to keep their employees satisfied enough to hold turnover to a manageable level.  Providing adequate customer service for the retirement plan can be more cost effective than, for example, raises--but ex-employees don't fit into the calculation at all.

If you go with a rollover IRA from one of the major fund families, such as Vanguard, Fidelity, or American Century, you'll be getting your customer service from someone whose job it is to provide good service to its customers--and you'll be one of those customers.

Cost

An awful lot of employer-sponsored retirement plans are high-cost affairs.  That's simply because the company usually outsources the plan, and usually outsources it to some operator that comes in and does a hard-sell of a turn-key operation.  The plan looks slick, sounds like it will appeal to the employees, and the operator promises to take care of everything.

Unfortunately, the company with the slickest presentation is not usually the one with the lowest costs.  A certain amount of cost is unavoidable.  On top of the ordinary investment expenses and customer service expenses that any fund will have, there are legal compliance issues (and the laws and regulations keep changing).  Companies are going to be willing to pay for all that stuff--and willing to pay a little extra, since they're paying with your money.

The major fund families are selling their services to the person who's going to be paying for them, so their incentives to balance cost and service are more aligned with your interests.  They have legal compliance issues for IRAs as well, but a major fund family can spread the costs for that over all the IRA accounts they've got.  

General principles

I don't know about you, but when an employer lets me go, I figure it shows that they're not too bright.  Either they can't tell a good employee from a poor one, or else they're managing their business so poorly that they have to let good employees go along with the poor ones.

Either way, I see it as a mark in the minus column.  If they can't run their own business well enough to keep me employed, why should I imagine that they'd do a good job managing my retirement savings?

Reasons to stay

Cost, again

The only good reason to stay with your former employer is if it offers a good selection of low-cost funds.  Although many charge way too much money, there are plenty of others that don't.  (In fact, some employers pick up the plan expenses as an employee benefit.)  It's not so easy to know which yours is.  If your plan offers enough information on costs that you can be sure that they're giving you a good deal on plan expenses, then you may want to stay.

Save a step

You may be going to a new employer with a great 401(k) plan.  In that case, you may have the option to roll your old 401(k) money directly over to your new employer's plan.  In that case, it might make sense to leave your money in the old plan temporarily, rather than roll it over twice.

Legal diversity

There are a bunch of laws protecting various kinds of retirement accounts from creditors.  If you lose a lawsuit or suffer some other terrible financial reversal, your retirement funds are protected to some extent.  The thing is, these protections are provided piecemeal by the various laws creating the different kinds of plans--so they're all somewhat different.  The upshot of that is that in any particular situation, one kind of plan might be less protected than some other kind of plan.  Ideally, then, you'd want to have your money spread over a variety of different kinds of plans.  (Everybody knows not to put all their eggs into one basket.  There may be a tiny bit of extra protection in using more than one kind of basket.)

Move your money

Very few employer-sponsored retirement plans are as good as an IRA from one of the big fund families.  There are a few reasons why you might want to keep your retirement savings with your ex-employer, but they're all special situations that don't apply to most people.  Unless you've done the research and know that your ex-employer has a great, low-cost plan, you're better off just moving your money.