Consolidation Corner

Whenever I am meeting with a plan sponsor, TPA or recordkeeper for the first time, I ask about returned mail related to missing participants; and almost every time I get…“the look”. The look and/or eye roll that instantly says that returned mail is definitely a problem. The entire retirement industry is all-too-familiar with returned mail related to missing participants. In addition to the money wasted on materials and mailing costs, missing participants create administrative burdens and increase the plan’s fiduciary liability risk.  So, what’s a fiduciary to do?

Give ‘Em What They Want—And Need!

Warren Cormier, CEO of Boston Research Technologies, recenty published a research study that revealed that a large majority of plan participants are receptive to consolidating their retirement savings accounts in their current plans.

The Case for Automatically Moving Mandatory Distributions Forward

The mandatory distribution-to-Safe Harbor IRA plan feature as commonly utilized today was conceived in 2001 and launched in 2005 with good intentions, and for valid reasons. A mobile workforce, combined with a lack of retirement savings portability, had created a burgeoning problem for plan sponsors: an explosion of small-balance (less than $5,000) accounts left “stranded” in-plan, resulting in rampant cashouts, missing participants, uncashed distribution checks and the like. These problems only accelerated with the widespread adoption of auto enrollment, beginning in 2009.  

“Make the smart decision the easiest decision.”

This seems like an obvious goal for plan sponsors when designing participant directed retirement plans, and it’s certainly driven the rapid adoption of the autos – auto enrollment, auto deferral escalation and auto pilot investment options, such as target date funds.

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

In his July 30^th, 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.

Today, it’s a commonly-accepted practice for plan sponsors to focus on three major initiatives in order to promote retirement adequacy: participation, saving and diversification. While these concepts are proven, the emerging best practice is to incorporate the principle of consolidation, so that plan sponsors will begin to focus on participation, consolidation, saving and diversification.

Plan sponsors can help themselves and their participants over the long term by rolling balances of $5,000 or less from inactive participants into safe harbor IRAs. However, for various reasons discussed below, many safe harbor IRAs don’t live up to their name and could leave sponsors with unexpected fiduciary liability.

Gaining Comfort That an External Plan Service Provider Has Adequate Security and Controls 

"Do You Feel Lucky 401(k) Saver? Do You?"

Collaborating with Retirement Clearinghouse, Boston Research Technologies completed groundbreaking research earlier this year on the mobile workforce and the job changer’s attitudes and behavior regarding their 401(k) accounts during job transition. When asked what these participants did with their prior employer 401(k) accounts, the majority of respondents indicated they left their balances behind with 53% of Millennials, the most mobile age cohort, indicating they had left at least one retirement account with their prior employer.

Mandatory distributions from employer-sponsored plans are a creation of regulation—specifically, a section of ERISA that allows plan sponsors to distribute accounts with less than $5,000 out of a qualified plan and into a safe harbor IRA. If plan sponsors follow the rules, they are protected from legal recourse, and the rules are simple: act in a fiduciary manner when choosing a provider for their program. However, that word—“fiduciary”—is often hard to define and can be interpreted in many ways, so it begs the question: “How does a sponsor best fulfill that responsibility in the context of a mandatory distribution program?”