Am I right to be suspicious when my employer keeps changing their 401K plan?

You know, when they announce that they'll be going with a new plan provider. Some of your investment options may be carried over into the new plan, others must be liquidated/transfered into other funds that the new plan offers.
All of this activity then takes place during a blackout period. My cynical nature leads me to think that when there is that much money "floating" around in the pooled accounts, the opportunity for arbitrage profit or even outright skimming makes the whole affair kind of shady.

Can someone tell me how much, if any, my employer might profit in such a scenario, and is it legal? If I'm just being paranoid, please let me know by telling me how such conversions are safeguarded from would be embezzlers.

I see what you mean, but wouldn't the fund provider have opportunity to manipulate the timing of the conversions. This in turn might make the employer's offer of taking over their 401K plan an enticement for such mutual fund providers, who might then reciprocate such a favor indirectly...
Wow, I do sound paranoid, LOL!
Anyway Josh, thanks for your answer. I'll leave the question open a while longer, but so far those 10 points have your name on them.

as an independent 401k consultant I can tell you that they are almost assureadly not skimming any money. the 401k is held in a trust. 99.99% of the time your employer has someone like me making sure that every penny is accounted for. If they aren't using a third party then the takeover company reconciles the account.

The typical reason they typically move accounts is service. The prior recordkeeper wasn't doing their job. The second reason that companies leave is for better funds. Better may mean that the company doesn't pay any out of pocket expenses (fees are paid through what's called 12b1 fees - you can see if your plan has this by looking at the expense ratio screen on yahoo or morningstar). Often times a provider will sell a shortsighted company owner on the concept of "free" when it's really the participants paying for it. Often times the company owner is the main account holder as well so this dope just moved expenses from a deductible expense to a non-deductible expense. And lastly...many companies moved when Eliot Spitzer announced all those mutual fund companies that were under investigation for trading practices....no trustee wanted to be responsible for staying with such a fund.

Being a trustee of a plan means personal liability....not many business owners are willing to take the risk of losing their home for screwing up a plan like what you are asking about. While it happens, it's typically not in the methodology that you are talking about. Much easier to simply not make the payroll contributions and create fake statements. But if you're investing directly with a mutual fund company??? you're safe.

So we've established that the company doesn't have reason to move...who does? Financial advisor...financial advisor will move companies from company to company to chase the trail. Many times their compensation will drop after a few years so they move to a new company to reup their residuals. Also the new company may be actively marketing so that they can get the front end loads....if you're funds all have front end loads or 12b1 fees or sub-ta agreements in place then it's likely the financial advisor pulling the strings and the company boss has no clue.

Typically, employers switch 401(K) plans for the sake of the employees. Often times, the new plan has more perceived benefits that encompass a wider number of employees. On other occasions, the company may be unhappy with the administration and/or service provided by the 401(k) provider, and feel they would benefit more from using a different provider.

An unfortunate, and I think extremely unfair, provision of a provider switch is often the blackout period that you mentioned. During this time, you not only cannot access your money (which really has more affect on retirees who have maintained their 401(k) accounts rather than rolling them over to IRA's), but you cannot liquidate either.

I can't think of any way possible your employer could "skim" off the 401(k) plans during this "floating" period. It's not like the money is going into a general account with your employer - when you pay into a mutual fund, the fund itself holds your money. When you are forced to liquidate a fund because the new plan does not offer the former fund, the "swap" is generally done instantly. You usually assign the new allocation in advance, so the money doesn't wind up sitting in a money market account during the blackout period. However, even if the money sat in a money market account with the new 401(k) provider, it is still inaccessible to your employer.