Consolidation Corner

Bringing Clarity to the Murky Problem of Missing Participants

Posted by Thomas Hawkins on Oct 13, 2017 4:02:45 PM


On October 2
nd, 2017, the American Benefits Council delivered a letter to the Department of Labor (DoL), urging the DoL to act on the problem of unresponsive or missing participants, an issue that has proven to be a significant point-of-pain for plan sponsors.


The central focus of the Council’s letter is the need for comprehensive and consistent guidance for plan sponsors in locating missing participants, a critical process that’s necessary to satisfy the DoL’s goal of ensuring that all participants receive their retirement benefits. 


In seeking clarity and consistency, the Council seems to have hit their mark, laying out a series of recommendations for an adaptive framework, based on the lifecycle of terminated, vested employees that includes the periods before, just prior to, and following distribution events.  


If adopted, the recommendations would supply desperately needed direction to fiduciaries of ongoing retirement plans, as well as providing a predictable framework for the DoL’s enforcement actions.


What’s Missing: A Strategic Solution for Missing Participants


As importantly, a careful read of the letter indicates the Council also grasps the larger dynamics of the missing participant problem, correctly identifying its underlying root causes. 

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Topics: Auto Portability, Automatic Rollovers, 401(k) Consolidation, In-Plan Consolidation, Cash Outs, Leakage, America's Mobile Workforce, Auto Enrollment, Retirement Plan Portability, Automatic Rollover, PSCA, Stale Dated Checks, 401k leakage, EBRI

‘May Day, May Day’: Locate your plan’s lost & missing participants before it’s too late

Posted by Spencer Williams on Oct 5, 2017 1:47:11 PM


The recent hacking of Equifax, which potentially compromised the security of sensitive information for 143 million Americans, doesn’t just reinforce the importance of cybersecurity. This cyberattack also makes a compelling case for the widespread adoption of auto portability.

Yes, you read the above correctly. Participants who roll their 401(k) savings into an active account in their new-employer plans when they change jobs are making a sound financial decision as well as a sound security decision. Completing a roll-in removes a participant’s stranded 401(k) account, and the sensitive information attached to it, from the online systems of the former employer and its record-keeper. The fewer systems where a participant has an active account, the less likely that participant’s sensitive data will be compromised in a cyberattack.

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Topics: EBN, Auto Portability, 401(k) Consolidation, Retirement Plan Portability, Retirement Savings Portability

Why Consolidation Should Top the List of Initiatives for Plan Sponsors in 2018

Posted by Neal Ringquist on Oct 2, 2017 12:31:47 PM

Today, it’s commonly-accepted practice for retirement plan sponsors to focus on three major initiatives to promote retirement adequacy: participation, saving and diversification.


While these three initiatives are proven, an emerging best practice is for plan sponsors to expand this list, incorporating consolidation, where plan participants are encouraged to consolidate balances from former employers’ plans, using their current-employer’s plan to manage their retirement savings.


Why Consolidation?


The American worker is highly-mobile, changing jobs over seven times in a career, and relocating once every 7 years. At the same time, participation in plans has increased substantially, primarily due to auto enrollment.  


These facts, combined with “do-it-yourself” portability, have resulted in an explosion of stranded, small-balance retirement savings accounts – or worse – unnecessary cash outs. Past leakage/cash out studies by the GAO, Aon Hewitt and Fidelity have all shown a clear correlation between account balance and cash out rates:  the higher the retirement account balance, the lower the cash out rate.  


Consolidation fundamentally changes the small account dynamic, delivering real benefits to plan sponsors and their participants.

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Topics: Auto Portability, Cash Outs, America's Mobile Workforce, 401k leakage

The Explosion of Small 401(k) Accounts

Posted by Thomas Hawkins on Sep 18, 2017 4:28:54 PM


It’s generally accepted that the small-balance accounts of terminated 401(k) plan participants have been a problem for plan sponsors, resulting in increased plan costs, fiduciary risk and other ancillary problems, such as missing participants and uncashed distribution checks.

Now, based on new information from EBRI and other sources, we’re learning that small accounts are a large and growing problem for active participants as well.

If no action is taken to make retirement savings more portable, an increasingly mobile workforce will ensure that this collective “explosion” in small accounts will exacerbate headaches for plan sponsors. For participants with small accounts, research indicates that bad outcomes will only worsen as they leave savings behind or cash out entirely.

Looking Back: The Impact of Public Policy on Small Accounts

The problem of small accounts -- for both terminated and active participants – didn’t happen overnight, and has been influenced over many years by public policy, resulting in a decidedly mixed bag of outcomes. 

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Topics: Auto Portability, Automatic Rollovers, 401(k) Consolidation, In-Plan Consolidation, Cash Outs, Leakage, America's Mobile Workforce, Auto Enrollment, Retirement Plan Portability, Automatic Rollover, PSCA, Stale Dated Checks, 401k leakage, EBRI

Don’t Wait Until It’s Too Late: Prepare Now for Year-End 401(k) Plan Terminations

Posted by Thomas Hawkins on Sep 6, 2017 9:45:08 AM

As we enter the 4th quarter of 2017, many plan sponsors (as well as their advisors) will face the prospect of terminating a 401(k) plan.  For most, this will be the first -- and only -- time that they’ll undertake this important initiative, typically without the benefit of prior experience.

Unfortunately, many sponsors in this position will realize too late that time is not on their side, and will be scrambling to perform all the steps necessary to effectively terminate their plans.


When conducted properly, a 401(k) plan termination can take up to 4 months, from start-to-finish, and will require significant planning, flawless execution and strict attention to detail.  On the other hand, a poorly-executed plan termination could result in your plan not being properly terminated, which could result in delay, additional expenses -- and even worse -- the scrutiny of a DOL or IRS audit.

To educate sponsors in understanding the basics of terminating 401(k) plans, Retirement Clearinghouse has prepared a three-part video series.

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Topics: Auto Portability, Automatic Rollover

The Exit Bonus Employers Never Intended to Pay

Posted by Spencer Williams on Aug 30, 2017 4:52:05 PM


Without seamless plan-to-plan portability in place to preserve retirement savings when a participant changes jobs, many employers are unwittingly paying “exit bonuses” to terminated employees that they may never have intended to pay.


How the ‘Exit Bonus’ Works

Employer-matching contributions refer to a matching dollar amount contributed by an employer to the retirement savings of an employee who also makes a similar contribution, usually to a 401(k) plan. Typically, these matching contributions are viewed by employees as a tangible, high-value benefit, and by employers as a means to attract and retain the best talent, and improve plan participation and deferral percentage metrics.

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Topics: EBN, Auto Portability, 401(k) Consolidation, Retirement Plan Portability, Retirement Savings Portability

Five Ways to Make Retirement Savings Portability a Priority in 2018

Posted by Neal Ringquist on Aug 22, 2017 11:17:59 AM

It’s become widely-accepted that retirement savings portability is proven to address the small account problem for 401(k) plan sponsors, as well as preserve participants’ savings currently lost to cashout leakage.


However, the concept of retirement savings portability is relatively new. At year’s end, most plan sponsors’ attention will be focused on other plan design issues, such as auto enrollment/escalation, the lineup of investment options, enrollment, education, retirement income solutions and so forth. 


Sadly, many sponsors could miss an important opportunity to make some straightforward changes to enhance portability that can significantly improve participants’ financial wellness, reduce plan expenses and minimize fiduciary liability.


As the end of 2017 approaches, here are five actions that a plan sponsor could take to facilitate retirement savings portability and significantly improve their plans in 2018.


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Topics: Auto Portability, Cash Outs, America's Mobile Workforce, 401k leakage

The Cashout Clock is Still Ticking: Let’s Stop It!

Posted by Thomas Hawkins on Aug 16, 2017 3:06:24 PM



On May 12th, Retirement Clearinghouse announced the National Retirement Savings Cashout Clock, a virtual clock that calculates 2017 year-to-date cashout leakage from America’s defined contribution system in real time.


When it was announced, the Cashout Clock had already registered $24.4 billion in cashouts. 


Since then, the Cashout Clock has relentlessly advanced, adding another $16 billion to cross the $40 billion mark in late July.  As of this writing, $42.3 billion in cashouts have occurred thus far in 2017. If nothing happens to stem the flow, then we’ll reach $68 billion in cashouts by year’s end.

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Topics: Auto Portability, Automatic Rollover

Small Accounts: The Root of Many Problems

Posted by Spencer Williams on Aug 9, 2017 11:25:14 AM


If you’re like most homeowners during these dog days of summer, you’re not just basking in the sunshine or swimming in the pool with your family. You also have a fight on your hands—the war against the dandelions that invade and attempt to occupy your entire lawn every year at this time.

As every experienced gardener knows, you can’t get rid of dandelions by picking their stems. This tactic offers a mere temporary solution to the problem. People may not be able to see dandelions on your lawn for a while, but the roots of those weeds are still in the soil, so they’ll quickly grow back, and might return in greater numbers than before.

You have to attack the root of a problem if you want to win an entire war instead of just individual battles. And what’s true in the war against dandelions is also true for the war against the administrative headaches posed by small retirement accounts owned by terminated participants. These administrative hassles may seem trivial at first, but if left unchecked, can lead to serious problems for defined contribution plan sponsors, such as high expenses and inadvertent fiduciary liability.

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Topics: EBN, Auto Portability, 401(k) Consolidation, Retirement Plan Portability, Retirement Savings Portability

A Big Step Forward for Auto Portability

Posted by Thomas Hawkins on Jul 25, 2017 12:11:50 PM

On July 11th, 2017, a small group of retirement services professionals at Retirement Clearinghouse (RCH)  successfully conducted the first-use of a new and important financial technology.  Known as “locate & match” -- the technology represents a breakthrough in the ability to automatically move small balances forward in America’s defined contribution system, and forms the backbone of RCH Auto Portability.


For the first time, auto portability is now live in America’s defined contribution system.

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Topics: Auto Portability, Safe Harbor IRA, Automatic Rollover, Automatic Roll-In, Locate & Match

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