Why does this matter?
Migrations between 401(k) recordkeepers are inherently complex. While much of the focus is placed on the successful transfer of participant data, investment funds, and loan balances, cash reconciliation is often the area where operational risk quietly surfaces. Failing to fully reconcile cash inflows, outflows, and trades during the transition can lead to service disruptions, uninvested funds to audit findings and potential compliance breaches.
What Makes Cash Reconciliation So Complex During a Migration?
- Multiple Moving Parts: Payroll deposits, participant investment trades, loan disbursements, and plan fees may all be in transit or pending settlement at different stages.
- Two Books of Record: For a period of time, both the outgoing and incoming recordkeepers maintain partial views of cash activity, increasing the risk of inconsistent reporting.
- Third-Party Involvement: Custodians or Trust Companies (e.g., Matrix, Charles Schwab Trust) often serve as intermediaries for cash movement, adding layers of approval and timing dependencies.
- Timing Mismatches: Payrolls processed by the outgoing recordkeeper may not settle before the new provider begins accepting new transactions, causing temporary “cash in limbo”.
Key Reconciliation Areas to Manage
1. Pre-Migration Balancing
• Confirm the ending cash balance at the custodian matches the old recordkeeper’s book.
• Validate that pending trades, fees, and loan activity are fully accrued or carried forward.
2. Blackout Period Monitoring
• Track all participant contributions and loan repayments received during the blackout.
• Identify stale trades or unmatched cash awaiting allocation post-migration.
3. Post-Migration Validation
• Reconcile the initial cash-opening balance in the new recordkeeping system with the actual settled cash at the custodian.
• Match each post-cutover transaction to its corresponding cash flow and fund movement.
4. Trade-Linked Cash Movement
• Ensure each trade’s proceeds or purchases align with both the custodian’s confirmation and the internal system’s investment accounting.
Tools & Techniques for Accuracy
• Mirror Environment Testing: Use a shadow ledger to test the cutover and simulate cash activity before the go-live event.
• Automated Matching Software: Leverage AI-enabled tools to highlight unmatched transactions between recordkeepers, custodians, and trading platforms.
• Daily Cash Tie-Outs: During the first 30 days post-migration, perform daily cash reconciliations to identify and resolve discrepancies quickly.
Common Pitfalls to Avoid
• Ignoring Source-Level Detail: Relying solely on fund-level totals without reconciling individual contribution sources (e.g., employee deferrals, employer match, rollovers).
• Misclassifying Funds in Transit: Treating cash not yet settled as final balances can lead to shortfalls or misallocations
• Overlooking Blackout Activity: Contributions or loan repayments made during the blackout period may be missed if not tracked and manually posted.
• Blind Trust in Custodian’s Statements: Custodian reports may contain pending adjustments or manual errors —trust but verify.
Cash Reconciliation Is More Than Accounting – It’s Risk Management
Accurate cash reconciliation during a 401(k) migration is not just a behind-the-scenes technical accounting task. It’s a critical component of fiduciary oversight and participant protection. A disciplined, transparent reconciliation process helps ensure that participant funds are fully invested, records remain accurate, and plan sponsor meet their compliance obligations. The smoother the reconciliation, the more confident all stakeholders can move forward, knowing the transition upheld the highest standards of integrity.
Expert Support for a Risk-Free Migration
At Enterprise Iron, we specialize in critical components that make 401(k) migrations successful—trade and cash reconciliation, recordkeeper transition strategy, and precise data mapping. Our team brings deep experience and proven methodologies to help plan sponsors and providers navigate complex transitions with confidence and control.
Contact us today at: info@enterpriseiron.com to learn how we can support your next migration.