Here’s a tip for retirement-plan investors in a volatile market: Beware the “hierarchy trap.”

Retirement plans have varying rules on withdrawals—and your money can be yanked from a part of your account you didn’t expect if you’re not careful.

Some plans allow investors to specify which fund or funds they want redeemed, or have the money taken out “pro rata” based on the percentage of their holdings in various funds.

Then there are those that employ a “hierarchy” approach—automatically taking money first from the lowest-risk and/or easily traded funds, such as money-market investments. The rationale behind this practice is to preserve growth in retirement accounts.

It isn’t clear how many retirement funds have the hierarchy method. But the broader problem for investors is that there often is no disclosure of the withdrawal protocols—either in the plan summary available to participants or, as I found out firsthand, from Fidelity Investments, which administers my News Corp 401(k) plan and has the plan’s withdrawal protocol on an internal system but doesn’t automatically disclose it to investors. (I’m in the News Corp plan as a retired editor of The Wall Street Journal.)

Case study

On Jan. 23, I called Fidelity and requested a withdrawal from my 401(k), emphasizing that I wanted some cash and was looking to reduce my stock-market exposure. Fidelity told me it would pull the money “pro rata”—or proportionately—out of all my investment holdings in the 401(k) plan. I agreed.

Imagine my surprise when I saw soon after that Fidelity had withdrawn all the money from a Fidelity money-market fund. This had the opposite effect of what I had intended: It proportionately increased the percentage of my stockholdings.

Fidelity pulled the tape of my call requesting the transaction, and initially said it had followed my intentions and pulled out the money from my account “pro rata.”

I informed Fidelity of the definition of “pro rata” and said that surely wasn’t the case here. Fidelity then suggested that I agreed to have the withdrawal solely from the money-market fund. I urged them to again listen to the tape of the call, and to alert me when I would have said that. (I didn’t.)

Fidelity finally blamed the 401(k) plan’s “fund hierarchy.” In a March letter, the company wrote: “We apologize that you were misinformed regarding plan rules for this withdrawal.” The letter said that “per plan rules, the withdrawal was redeemed through fund hierarchy. As a result, the withdrawal came solely from the (Fidelity government money market) fund.”

Fidelity provided the hierarchy list for my 401(k) investments in an April letter, only after I’d requested it. “The fund hierarchy redemption method means the redeemable monies would be pulled from the first fund of the Plan’s hierarchy list, and if that fund is depleted, then the second fund on the hierarchy list would be accessed to redeem the monies required, with this process continuing until the required moneys are redeemed to satisfy the distribution amount,” it said.

A Fidelity representative told me that Fidelity knew about the News Corp plan’s “hierarchy” rules—the financial giant includes such rules in its internal system—but doesn’t automatically share that information with plan participants. There was no disclosure in the News Corp 401(k) summary plan documents that are accessible on the Fidelity website.

Fidelity and News Corp declined to comment for this article.

How to avoid

So what can you do to prevent such a predicament?

Before making any moves with your retirement account, be sure to ask your 401(k) administrator if your plan has an automatic fund hierarchy and request that information—it’s the only way I later was able to obtain it.

Meantime, if you want money from your account while reducing your stock exposure, you could consider first reallocating that amount of money from your stock funds to whatever fund is at the top of the hierarchy list in your account before redeeming shares.

That’s what I did, as I was waiting for weeks for Fidelity to figure out what had gone wrong. I made the equity-market reallocation in my 401(k) before the recent turbulence in the stock market.

Even as you stay alert to avoid the hierarchy trap, specialists say it remains wise to avoid being trigger-happy with your retirement plan. “Because of rapid swings in the market, it’s best to keep a long-term focus and not have knee-jerk reactions to the daily market returns,” says Rob Austin, director of research at Alight Solutions, which serves more than 200 large plans.