Explaining 401(k) Options to New Hires: A Script and FAQ for Managers

Hook: Stop losing new hires to confusion about retirement benefits

New hires and employees exiting a role often feel overwhelmed when you mention their 401(k). That confusion can cost you trust — and sometimes retention — if people think benefits are opaque or risky. As a manager, you don’t need to be a retirement-plan expert, but you do need a clear, accurate script and an FAQ so new hires understand their 401(k) options when they join, change jobs, or plan to retire.

The big idea — what managers must deliver in the first 10 minutes

Lead with clarity. In a typical one-on-one onboarding or offboarding, your job is to: (1) summarize their choices plainly; (2) surface the one or two actions most relevant to their situation; and (3) give an easy next step tied to HR resources. Below you’ll find a ready-to-use script, an email template, an onboarding/offboarding checklist, and a lawyer-friendly FAQ you can use in HR handoffs.

Why this matters in 2026

• Plan portability and fintech solutions (auto-rollover services, plan-to-plan transfers) have expanded — employees expect swift, digital options.
• Employers are adopting Pooled Employer Plans (PEPs) and open MEPs, simplifying admin but changing rollover pathways.
• Roth balances, in-plan Roth conversions, and lifetime-income product disclosures are more common — tax and distribution choices now matter more.
• Regulation and consumer expectations emphasize fee transparency and easy disclosures; employees expect plain-language explanations during onboarding and offboarding.

Manager-facing one-on-one script: Explain 401(k) options in under 6 minutes

Use this script verbatim or adapt the tone to your company culture. It’s organized so the employee hears the most important choices first: keep it, move it, or take it.

Opening (30 seconds)

Manager: "I want to quickly explain your 401(k) options so you can make the right choice for your plan balance and life stage. I’m not the plan administrator, but I’ll walk you through the usual options and point you to the exact next steps with HR and our plan provider. Does that work?"

Step 1: Confirm basics (30 seconds)

Manager: "Do you have an existing 401(k) with us today? If yes, what’s the approximate balance?"

Step 2: Present the options clearly (2–3 minutes)

Say this summary and tailor the recommended action:

• Leave the balance where it is: "You can usually keep your account where it is if the plan permits. That’s low effort — good for people who like the current investments and want to avoid immediate paperwork. But watch fees and limited investment choices."
• Roll over to your new employer’s plan: "If your new employer’s plan accepts rollovers, moving your balance can simplify future savings under one plan. This is often best for convenience and continuing any professional advice you already use."
• Roll over to an IRA: "A rollover to an IRA gives broader investment choices and more control. It may be better if you want specific investment strategies, Roth conversions, or consolidated management outside employer plans."
• Cash out: "You can take a lump-sum cash distribution, but there are usually taxes and penalties if you’re under 59½, and you lose future tax-deferred growth. We generally discourage cashing out unless there’s an urgent need."
• Consider annuities/lifetime income options: "Some plans now offer in-plan annuity or lifetime-income windows—these can be useful for retirees seeking guaranteed income. HR can share the specifics if you’re close to retirement."

Step 3: Quick recommendation (30 seconds)

Manager: "Given what you’ve told me, here’s my quick recommendation: [recommendation: e.g., roll to new employer / roll to IRA / leave it]. I’ll send HR’s contact so you can complete it digitally. You should also check the plan fee and investment options—HR will give you the comparison."

Step 4: Close and next step (30 seconds)

Manager: "I’ll email you the HR link and a short checklist. If you want help comparing choices with a financial counselor, our benefits vendor offers that service — shall I connect you?"

Manager email template: Offboarding or onboarding 401(k) quick-start

Use this short email after your conversation. It reduces confusion and keeps the employee on a clear path.

Subject: Your 401(k) options — next steps

Hi [Name],

Thanks for reviewing your 401(k) options with me. Based on our chat, here are your next steps:

1. [Recommended action — e.g., Roll over to your new employer’s plan]
2. Contact HR/Plan Admin at [email/phone] or visit [link to plan portal].
3. If you want financial counseling, sign up here: [vendor link].

Tell me if you want me to introduce you to HR directly.

—[Manager name]

Checklist: The offboarding 401(k) flow for managers

Use this check-and-send list when someone leaves or retires.

• Confirm whether the employee has a plan balance and approximate amount.
• Check vesting status for employer contributions and inform the employee.
• Run the one-on-one script and capture the employee’s preferred option.
• Send the email template and HR contact within 24 hours.
• Ensure HR provides plan-specific facts: cash-out thresholds, rollover forms, loan payoff rules.
• Offer financial counseling or benefits-clinic enrollment.
• Document the conversation in the offboarding checklist and escalate unresolved issues to benefits admin.

FAQ for managers to answer common employee questions

Quick, manager-ready answers. Keep them concise; defer to plan admin for plan-specific mechanics.

Q: Can I leave my 401(k) with my former employer?

A: Often yes. Many plans allow former employees to keep their accounts in the plan. Explain the trade-offs: staying avoids immediate paperwork but may limit investment options and access to financial advice. Encourage the employee to check plan fees and whether the plan offers lifetime-income or Roth options they want to keep.

Q: What is a rollover and which type should I choose?

A: A rollover moves retirement money to another tax-advantaged account. Two main types:

• Direct rollover (trustee-to-trustee): Plan sends funds directly to the new plan or IRA—no tax withholding; preferred.
• Indirect rollover (60-day): Employee receives a check and must deposit in 60 days—tax withholding applies; higher risk and more hassle.

Q: What happens if the employee cashes out?

A: Cashing out triggers taxes and potentially a 10% early-withdrawal penalty if the person is under 59½, unless an exception applies. It also reduces retirement savings and employer-matched amounts if the contributions were vested. Recommend alternatives before endorsing cash-out.

Q: Are there mandatory cash-out rules for small balances?

A: Plan rules vary. Some plans automatically distribute very small balances or use an IRA rollover with a recordkeeper. Always check the plan document. If you’re unsure, direct the employee to HR for the plan’s exact threshold and handling process.

Q: What about loans and outstanding obligations?

A: If there’s a loan and the employee leaves, many plans require repayment within a certain timeframe. Unpaid loan balances can be treated as distributions (taxable). HR or the plan administrator should provide the payoff options.

Q: Does leaving affect vesting of employer contributions?

A: Vesting schedules are determined by plan rules. If not fully vested, some employer contributions could be forfeited upon separation. Have HR confirm the individual’s vesting status during the offboarding process.

Q: What about Required Minimum Distributions (RMDs)?

A: As of 2026, employees generally must begin RMDs starting at age 73 under current law. If an employee is near that age or already taking RMDs, advise immediate coordination with HR and the plan administrator. For retirement-age employees, discuss distribution options and tax consequences carefully. Use calendar and scheduling tools like calendar data ops and scheduling playbooks to track required distributions and avoid missed deadlines.

Q: Can an employee convert a pre-tax 401(k) to Roth?

A: Some plans and IRAs permit Roth conversions, including in-plan conversions. Converting triggers income tax on the converted amount but can reduce future tax on distributions. This is a tax decision — recommend the employee consult a financial or tax advisor and point them to the employer’s financial wellness resources.

Q: What are the implications of moving to a PEP or MEP plan at my new employer?

A: Pooled Employer Plans (PEPs) and Multiple-Employer Plans (MEPs) simplify administration and may have lower fees, but confirm whether they accept incoming rollovers and whether they offer the same investment lineup. HR can help with plan-to-plan compatibility; modern HR toolchains and AI-driven onboarding playbooks are increasingly used to smooth these transitions.

Practical scenarios & short scripts managers can use

Two common scenarios and what to say.

Scenario A: Mid-career employee changing jobs (balance $50k)

Manager: "Congrats on the new role. With a meaningful balance like $50k, consolidating may make retirement planning easier. I recommend rolling over to your new employer’s plan if they accept it, or to an IRA if you want more investment choices. HR will send the direct-rollover form—want me to copy you on that email?"

Scenario B: Near-retirement employee (age 62) leaving to retire

Manager: "Since you’re close to retirement, let’s look at lifetime-income options and distribution timing. Some of our plans offer annuity buy-ins or in-plan income windows; that could provide stable payments. HR and the plan’s retirement counselor can run illustrations of taking a lump sum vs. annuity vs. rollover to an IRA."

2026 trends managers should know (and mention)

• Auto-portability pilots and fintech rollovers: Many recordkeepers now offer plan-to-plan transfer tools. Inform employees you can check whether our provider supports direct plan transfers.
• Greater Roth adoption: Roth balances and employer Roth matching have grown — potential tax planning implications for employees.
• Fee and fiduciary transparency: Regulators and plan sponsors are emphasizing clearer cost disclosures. Tell employees you’ll get them a fee comparison if they ask.
• Personalized, AI-driven communications: Providers increasingly use AI to craft tailored advice. If our vendor offers this, encourage enrollment in their planning tools but remind employees to validate any tax recommendations with a qualified advisor. Keep security and data controls in mind — see secure AI policy guidance when sharing personal data with third-party tools.

Manager pitfalls to avoid

1. Don’t give tax or legal advice. If pushed, say: "I’m not a tax advisor — let me connect you with HR’s counselor or recommend a tax professional."
2. Don’t promise plan-specific mechanics you can’t confirm. Always check with HR or the plan administrator.
3. Don’t rush an employee into cashing out. Remind them of penalties and opportunity cost.
4. Don’t ignore vesting or loan payoff consequences—these materially affect decisions. Also be mindful of identity and verification steps needed for transfers — refer questions about account identity controls to HR or the recordkeeper.

Resources managers should have on hand

• Plan summary (SPD) and contact for the recordkeeper/plan administrator
• Vesting schedule and loan payoff rules
• Rollover forms and instructions for direct trustee-to-trustee transfers
• Links to the employer’s financial wellness program and third-party counselors
• Short FAQ you can drop into onboarding or exit emails (editable template included above)

Final checklist for the manager before you wrap the meeting

• Have you confirmed the employee’s plan balance and vesting? — Yes / No
• Did you recommend a next step and send the HR contact within 24 hours? — Yes / No
• Did you offer financial counseling or plan comparison? — Yes / No
• Did you document the employee’s stated preference in the offboarding/onboarding notes? — Yes / No

Closing: How to institutionalize clearer 401(k) communication

Employees value clarity. In 2026, benefits vendors and regulators expect employers to make retirement decisions less painful. As a manager you don’t need to be the expert — you do need to be the guide. Use the script above, keep your HR resources handy, and insist on plain-language plan summaries from your benefits team. Small, consistent improvements to how you present 401(k) options reduce errors, improve employee trust, and lower the chance someone drains their retirement savings out of confusion.

Call to action

Ready to standardize this at your company? Download our manager 401(k) conversation kit (script, editable email templates, and an offboarding checklist) or request a 30-minute HR-led training for managers. Contact your HR lead or click here to get the kit and schedule training for your team.

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