Consolidation Corner

The Fiduciary Rule and Participant Transition Management

Posted by Neal Ringquist on Mar 30, 2016 2:59:37 PM



Any day now, the Department of Labor will issue the final version of the long-awaited “Fiduciary Rule” which will redefine the term “fiduciary” under ERISA.  Much has been written about the impact on advisors and broker-dealers, given their service models to retirement plans.  


Another side of the retirement market could see big changes: the handling of distributions for job-changing participants.  While a qualified plan distribution might seem like an administrative task, it’s actually a critical transition point, where plan sponsors must carefully consider the information, guidance and assistance that their participants receive, ensuring that it’s both complete and conflict-free.


How the Definition of Investment Advice Will Change


Under the current rules, the DOL uses a five-part test to determine whether a service provider is providing “investment advice” and thus acting in a fiduciary capacity.  For the advice to be considered investment advice, the following 5 conditions must be met:


  1. Advice is given as to the value of an investment or the wisdom of purchasing an investment.
  2. The advice is delivered on a regular basis, and is
  3. pursuant to a mutual agreement between the advisor and advisee.
  4. The advice is individualized, and
  5. serves as the primary basis for investment decisions.


Under the proposed rule, the five-part test is replaced by a two-part test where the following conditions must be met:


  1. Advice is given as to the value of an investment or the wisdom of purchasing an investment.
  2. The service provider acknowledges their fiduciary status (mutual agreement), or the advice is individualized and for consideration in investment decision-making.


Notably absent from the new two-part test is the requirement that the advice be given on an ongoing basis.  This has called into question whether one-time “guidance” or assistance given to participants when they change jobs would be considered fiduciary investment advice, under the new rule.

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Topics: Auto Portability, 401(k) Consolidation, Managed Portability, Roll-In, In-Plan Consolidation, Cash Outs, Leakage

Let a Roll-In Increase Your Retirement Income

Posted by Neal Ringquist on Oct 5, 2015 1:49:13 PM


In his 10/2/15 MarketWatch article Let a Roll-in Increase Your Retirement Income, RCH President & CEO J. Spencer Williams advises retirement savers to bring their savings with them, vs. leaving their accounts behind -- or worse, cashing out.


Using straightforward math, Williams first illustrates the cost of a $5,000 cash out for a hypothetical 30-year-old, who will end up throwing away more than $52,000 in compounded savings, at age 65.  Unfortunately, over 2 million Americans with less than $5,000 will cash out their retirement savings every year.


Leaving accounts behind also poses risks to savers.  Small balances (less than $5,000) may be rolled out to a safe harbor IRA, and all accounts that are left unconsolidated may lose money on excess management fees.   Again, using simple math, Williams calculates that a hypothetical 25-year-old who switches jobs 6 times over a 40-year career and leaves behind multiple 401(k) accounts will lose over $30,000, due to unnecessary administrative fees.


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Topics: Auto Portability, MarketWatch, 401(k) Consolidation, Managed Portability, Roll-In, In-Plan Consolidation, Cash Outs, Leakage

Leaving Your 401(k) Savings Behind Will Cost You!

Posted by Neal Ringquist on Jul 30, 2015 3:03:00 PM

Leaving Your Retirement Savings Behind When You Change Jobs Will Cost You!

In his July 30th, 2015 MarketWatch article titled, Leaving Your 401K Behind When Changing Jobs Will Cost You, RCH’s CEO Spencer Williams gives sage advice to America’s mobile workforce, urging job-changing retirement savers to take the initiative and to consolidate their retirement savings.


Research proves that Spencer’s advice is spot-on: a recent study conducted by Boston Research Technologies finds that 33% of workers will leave balances in a prior plan at least once in their career. This costly move will penalize a hypothetical 30-year old $2,520 in fees by age 65. Cashing out is even worse:  according to Fidelity, the same 30-year old who cashes out a $16,000 401(k) balance could lose over $145,000 in retirement income.


So, take the initiative and consolidate! 


Click Here to Read the MarketWatch article titled, Leaving Your 401K Behind When Changing Jobs WIll Cost You.


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Topics: MarketWatch, 401(k) Consolidation, In-Plan Consolidation, Retirement Savings Portability

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