The 401(k) remains one of the best investment options when it comes to retirement planning. It is also among the most popular and familiar for long-term investments. One institution that offers 402(k) plans is Prudential.
As of December 2023, Prudential had over 710,000 401(k) plans with 70 million active participants, holding about $7.4 trillion in assets. Among the active 401(k) participants include millions of former employees and retirees.
In this article, InvestmentNews will evaluate the Prudential 401(k) plan. We’ll get into important questions about Prudential’s 401(k) plan, such as:
We’ll tackle these and other important questions about Prudential 401(k).
Prudential Financial Inc. (NYSE ticker code: PRU) is a financial services company based in Newark, New Jersey. Founded in 1875 by John Fairfield Dryden, Prudential Financial remains a Fortune Global 500 company and Fortune 500 company. Its subsidiaries offer a variety of financial services, mainly:
These are just some of Prudential’s financial planning services and products available to investors in the US and in over 40 countries worldwide. As of 2019, Prudential Financial became North America’s largest insurance company with an estimated $815.1 billion in AUM.
In 2021, Empower Retirement bought Prudential’s retirement plan division. The purchase was completed in 2022.
We’re proud to announce the completion of our acquisition of Prudential Financial’s full-service retirement business. Being trusted by more than 17 million Americans and serving them along their financial journey is an opportunity we embrace: https://t.co/gdr91MxjSj.
— Empower (@EmpowerToday) April 4, 2022
Prudential 401(k) operates just like other 401(k) plans. Employees contribute part of their paychecks to the plan, and their employer may or may not give them the employer match.
Whenever a plan participant makes contributions to their Prudential 401(k), it’s up to their employer to choose which investments the funds are placed in. This is usually a wide range of investments consisting of mutual funds, index funds, bond funds, and other securities.
Employers are legally obligated to find investments in line with the fiduciary standard, so they must find investments that are in the plan participants’ best interest. By putting plan participants’ money into these investments, ideally, the returns should grow significantly due to compounded interest.
As the Prudential 401(k) is a traditional 401(k), the contributions are made with money that’s tax deferred. None of it gets taxed until the account owner withdraws the money when they retire.
There are two types of 401(k) plans: traditional and Roth. Investors can get either plan, or even both, with Prudential Financial. Here is a quick comparison of the two 401(k)s:
Some similarities between traditional 401(k) and Roth 401(k):
How do they vary? This chart outlines the differences:
| Differences between a traditional 401(k) and Roth 401(k) | ||
| Traditional 401(k) | Roth 401(k) | |
| Taxes on contributions | Tax-deferred until withdrawal; shrinks gross taxable income during employee’s productive years | Contributions are taxed, although withdrawals are tax-free |
| Taxes on distributions | Money withdrawn in retirement is taxed as regular income | No taxes on distributions or earnings when taking qualified distributions (as long as the 5-year rule is met) |
| Employer matches | Matching funds are pre-tax | Matching funds for a Roth 401(k) go into a traditional 401(k) and are pre-tax |
| Withdrawal Rules | 10% early withdrawal penalty, plus taxes if made before age 59½ | 10% early withdrawal penalty, taxes applied if made before 59½, must meet the 5-year rule |
As of April 1, 2022, all 401(k) plans with Prudential were moved to Empower. In finding out the fees now, investors or advisors will have to look up pages on how to find the “hidden fees” from an Empower 401(k). On average, a formerly-Prudential-now-Empower 401(k) would be charged fees of up to 0.86% of investments.
With the high fees, it may be more prudent (pun not intended) for Prudential 401(k) plan owners to transfer their retirement savings to another provider. Some plan holders may also feel that Prudential’s shift to focus on insurance products and turn over their 401(k)s to Empower may not align with their financial goals or interests.
Typically, doing a Prudential 401(k) rollover can allow investors to take advantage of lower fees and possibly find more diverse investment options.
To avoid taxes or penalties, investors can do one of two types of 401(k) rollovers:
This is the simpler and more convenient option. In a direct rollover, the money in a Prudential 401(k) is transferred directly to another financial institution. This is almost like having opened a new account. If an investor chooses to roll over from their former employer’s plan, this is a better move, since there is less risk for anything to go wrong.
A Prudential 401(k) direct rollover involves these steps:
Gather all the relevant information and documentation, like personal information and account details. This might include:
Having all this information ready will help Prudential customer service speed up the process. It helps to coordinate the rollover with the new financial institution too.
When transferring a Prudential Financial 401(k) to a current 401(k) plan at a new employer, employees should confirm first that they accept old 401(k) plan rollovers.
The employee would need to contact Empower Retirement, LLC. As of April 1, 2022, it became the new point of contact for Prudential Financial 401(k) plans. The employee should:
The employee should review and sign the relevant documents to authorize and authenticate the fund transfer. Once the funds have been transferred, the employee can them according to their financial needs and goals.
The new 401(k) may have better investment choices and broader asset allocation – the employee should take advantage of this if it aligns with their goals.
In case the rollover doesn’t progress, the employee should check with both providers. There could be missing or incomplete documentation that's delaying the rollover.
This is the riskier option, and entails having the plan holder personally receive their former employer’s 401(k) funds, then deposit them in another retirement account. The process must be done within 60 days of initiating the rollover or the investor faces severe penalties and taxes.
There are several reasons why both employers and employees place a lot of faith in the 401(k) as their “best bet” as a retirement savings plan. These are the most prominent benefits of the 401(k) plan, regardless of provider:
Tax benefits
The money that goes into the 401(k) is pre-tax. What’s more, every dollar that the employee places into their 401(k) is tax-deductible by the same amount. This means that employees who make contributions into their 401(k) will pay less income taxes, equal to their contributions.
For example, if an employee places a $2,000 contribution to their traditional 401(k), their gross income will be reduced by that amount. Let's say if they had a gross income of $45,000, that is reduced to $43,000 for that year, and they’ll only be taxed that amount.
Taxes are collected when the money is withdrawn, presumably upon retirement. This also includes:
The growth or earnings on the 401(k) plan include interest, dividends, and capital gains. The 401(k) is so valued by American workers that some will only apply at companies that offer the 401(k).
The employer match
This is perhaps the biggest draw of the 401(k), since this is essentially free money from employers. When an employee contributes to their 401(k) plan, their employer “matches” the contribution.
Assuming a worker had a 401(k) and contributed 3.5% of their salary every month to it, then their employer would put in another 3.5%. Technically speaking, this means that the worker would be putting away 7% of their salary each month.
On the employer match, financial guru Dave Ramsey gives his two cents about 401(k) contributions. Ramsey rightfully points out that a major advantage of the 401(k) is that it’s owned by the plan holder, as opposed to a pension plan, which workers can lose if their employer closes shop. Watch the video to learn more about Ramsey’s views on 401(k)s:
Ramsey mentioned pension plans. To see how they stack up against 401(k) plans, read our guide comparing 401(k)s and pension plans.
Before recommending this 401(k) to clients, advisors should know that Prudential Financial has had some problems as of late. Apart from allegations of higher fees than other providers, Prudential has had to deal with a variety of complaints. In online Prudential 401(k) reviews, clients have pointed out problems like:
Many of these cases happened before Empower Retirement acquired Prudential.
Investors and advisors should do their due diligence and check whether Empower, the “new” Prudential 401(k) provider, is viable. There have been some reviews about Empower Retirement as well, and they are not flattering. So, failing that, investors and advisors should try other providers.
There are many 401(k) providers on the market, so no one should settle for familiar names. Practice due diligence and look for the best 401(k) provider that has a good track record of service, reasonable fees, and most importantly, fits your clients’ financial needs and goals.
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