Choosing the right 401k plan provider is key to securing your retirement savings. Two major players in this space are Principal and Fidelity. But how do these companies compare when it comes to 401k management, fees, investment options, tools and more?
This comprehensive guide examines the pros and cons of both providers to help you make an informed decision. Whether you’re reviewing plans as an employer or employee, read on to see how Principal and Fidelity 401k offerings match up.
A Brief Comparison Table
| Feature | Principal | Fidelity |
| Company History | Founded in 1879 | Founded in 1946 |
| 401k Clients | 47,000+ businesses | 30,000+ businesses |
| Fees | Competitive fees, medium cost | Very low fees for large plans |
| Investments | Broad selection of funds/stocks/bonds | Leading selection of index funds/ETFs |
| Tools & Resources | Personalized guidance and advice | Best-in-class online experience |
| Account Management | High-touch, boutique service | Efficient self-service model |
| Transitions | Consultative process | Structured transition process |
Overview of Principal Financial Group
With over 140 years of experience, Principal is one of the older and more established names in financial services. The Iowa-based company offers a range of retirement, investment, life insurance and employee benefit solutions.
For 401k plans specifically, Principal provides:
- Access to a broad range of investment options from stocks and bonds to mutual funds
- Flexible plan design and administration for employers
- Ongoing consultation and guidance on plan management
- Robust online tools and education resources for employees
Principal serves over 47,000 businesses with 6.4 million workers investing for retirement through their plans. They aim to provide customized solutions tailored to each client’s needs.
Overview of Fidelity Investments
Tracing its roots back to 1946, Boston-based Fidelity is another large financial institution providing a wide array of products and services. In addition to 401k plans, Fidelity offers retail brokerage, mutual funds, wealth management and more.
For workplace retirement accounts, Fidelity supplies:
- A diverse lineup of investments including index funds, bonds, ETFs and more
- Extensive investment research and analytics
- Ongoing consulting and fiduciary services
- Customizable plan options for any size business
- Leading online 401k management portal
Fidelity administers over 30,000 workplace plans for over 22 million retirement savers nationwide. They leverage their investment expertise to help employees plan and save.
Also Read: Comparison Between Fidelity And New York Life.
Key Differences Between Principal And Fidelity
1. Comparing 401k Administration and Management
A key part of evaluating any 401k provider is assessing their administrative services and plan management capabilities. This ensures smooth operations for employers and easy access for employees.
Both Principal and Fidelity offer strong administration and management:
- Consultative support in designing and maintaining plans
- Compliance with all regulations and reporting
- Processing of contributions, distributions, loans, etc
- Dedicated account management teams
- Enterprise-level online 401k management systems
- Specialist support teams for participants
- Educational resources on saving, investing
However, Fidelity gains an edge with their state-of-the-art online 401k platform accessible anytime. The platform provides comprehensive tools for modeling savings, planning investment mixes, accessing educational content and more.
Principal’s online tools are solid as well, but some users report clunkier interfaces compared to Fidelity. For seamless digital management, Fidelity excels.
2. Fees and Pricing of Plans
Another key consideration is the total fees charged by the 401k provider for administrative services, investment management and more. Both Principal and Fidelity offer competitive fee structures.
Some important notes:
- Administrative Fees – These are typically $750-$2,000 annually for basic plan administration. Both providers offer affordable options.
- Investment Expense Ratios – Index funds from Fidelity and Principal have similarly low expense ratios of 0.015% or less. Actively managed funds cost more.
- Asset-Based Fees – Fees based on total plan assets may range from 0.2% to over 1% and vary by services chosen. Fidelity is widely regarded as more affordable here.
- Service Add-Ons – Extra services like financial advice often involve incremental fees. Offerings differ between providers.
While direct fee comparisons can be difficult, Fidelity is generally regarded as the lower cost option especially for larger plans with their economies of scale. But both providers offer competitively priced solutions.
3. Investment Selection and Performance
The quality of investment options available is paramount for 401k savers. Principal and Fidelity both enable access to thousands of mutual funds, stocks, bonds, ETFs and more.
Fidelity stands out with their extensive selection of low-cost Fidelity index funds and ETFs offered commission-free. This makes it easy to construct a diversified portfolio at minimal expense.
In terms of performance, both providers offer funds that cover any risk profile. Average returns over time are comparable for key asset classes. As major institutions, both Principal and Fidelity have the scale to offer quality investment choices covering all categories.
4. Management Tools and Resources
Helping participants effectively manage their 401k contributions and investments is crucial. Principal and Fidelity provide useful tools and education.
Offerings include:
- Retirement planning tools to set goals and model scenarios
- Asset allocation guidance to optimize investment mixes
- Spending calculators in retirement
- Financial wellness education and content
- Access to investment research and data
- Personalized advice and consultation
Fidelity again stands out here with their highly intuitive online experience, vast research capabilities, and Ask Fidelity virtual assistant. But overall, both providers furnish ample resources to aid retirement savers.
5. Ease of Transition Between Providers
An important consideration for employers is the ease of transitioning to a new 401k provider if a change is desired. Both Principal and Fidelity aim to make this process as smooth as possible.
Typical steps in a 401k plan transition include:
- Executing transition contract with new provider
- Freezing the old plan
- Liquidating existing investments
- Transferring all assets and data
- Testing new platform
- Launching new plan
Fidelity earns high marks for their structured transition process and specialist teams dedicated to migrations. But Principal also focuses intently on successful handoffs.
Both providers aim for no disruption to participants. While transitions do take careful coordination, Principal and Fidelity have proven models to make the changeover seamless.
Also Read: Comparison Between Lendmark Financial And OneMain Financial
Frequently Asked Questions (FAQs)
The main differences are: Fidelity has lower fees and more technology-driven services, Principal provides more customized account management and consulting, Fidelity has a broader selection of investment funds/ETFs, Principal offers more personalized guidance on goal-setting, Fidelity excels at online 401k account management, Principal has strong phone and in-person support, Overall, Fidelity focuses on scale and efficiency while Principal provides high-touch service.
Contact Fidelity to initialize the process. They will work with Principal to execute the transition contract, freeze your old account, liquidate investments, transfer assets, and open your new 401k. Transitions typically take 2-3 months with no disruption to participants.
You can take distributions from your Principal 401k upon leaving your employer or retiring. Withdrawals before age 59.5 incur taxes and penalties. Upon separation, you can also rollover your 401k to an IRA without tax impacts.
If under 59.5, you can take 401k withdrawals but will owe your income tax rate plus a 10% early withdrawal penalty. For withdrawals after 59.5, you only pay income taxes on the distributions. Principal allows access to your funds after final payroll contributions are made, which can take 1-2 months after leaving a job.
Also Read: Choose Between Fisher Investments And Fidelity.
Final Thought
For employers seeking a 401k partner, both Principal and Fidelity stand out as leading choices. Key advantages of each include:
Principal
- Longstanding reputation and financial strength
- Customized approach to plan design
- Hands-on account management and consulting
- Competitive fees and investment selection
Fidelity
- Best-in-class online 401k management experience
- Low fees based on massive scale
- Unmatched selection of index funds/ETFs
- Cutting-edge tools and resources for participants
In summary, employers can’t go wrong partnering with either provider. Fidelity may have advantages in scale, technology, and costs that appeal to large corporations. But Principal takes a boutique approach focused on tailored customer service.
For employees reviewing plans, the investment options, tools, resources, and fees are quite comparable. Focus instead on convenience factors and how easily the provider portal allows you to manage your account.