Consolidation Corner

In Search Of: Guidance for Locating Missing Participants

Posted by Thomas Hawkins on Oct 25, 2017 2:33:48 PM



Two weeks ago, I authored an article applauding the American Benefits Council for their October 2nd, 2017 letter to the Department of Labor (DOL), which clearly identified the root causes of missing participants: a highly-mobile workforce and a lack of retirement savings portability. Extending the Council’s insight, I maintained that what’s really “missing” in our defined contribution system are initiatives that move retirement savings forward when participants change jobs, such as auto portability. When implemented, these initiatives could serve to dramatically decrease the overall incidence of missing participants.

 

Meanwhile, as a practical matter, fiduciaries of ongoing plans must still confront the problem of locating missing participants, and must do so with incomplete guidance. If audited, they’ll potentially face “ad hoc” enforcement positions by the DOL, which the Council asserts have been inconsistent and, in many cases, unreasonable.

 

This article focuses on the Council’s specific recommendations to the DOL as set forth in their letter. The Council’s recommendations, if adopted, could establish a more complete, consistent and reasonable framework for plans to address the missing participant problem, going forward.

 

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Topics: Auto Portability, Automatic Rollovers, 401(k) Consolidation, In-Plan Consolidation, America's Mobile Workforce, Auto Enrollment, Retirement Plan Portability, Automatic Rollover, Missing Participant IRA

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

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

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

Washington Recognizes Need for Retirement Plan Portability Solutions – Part 2

Posted by Neal Ringquist on Jul 20, 2017 1:00:53 PM

In January 2016, this blog published a post on the November 2015 letter from Senator Patty Murray (D–WA) of the Senate HELP committee, signed by a bicameral group of Congressional members, urging then Department of Labor (DOL) Secretary Thomas Perez to encourage the DOL’s Employee Benefits Security Administration to issue guidance on auto portability.


To demonstrate the bipartisan resolve to plug cash out leakage in the retirement system through auto portability, Senator Tim Scott (R-SC) published a similar letter this week, sent to current Labor Secretary Alexander Acosta, and co-signed by 10 Republican Senators, urging similar guidance on auto portability.

 

For this letter, Senator Scott also received the backing of a number of retirement-focused trade organizations, including the American Benefits Council, Financial Services Roundtable, Investment Company Institute, Insured Retirement Institute, Securities Industry and Financial Markets Association, U.S. Chamber of Commerce, Defined Contribution Institutional Investor Association (DCIIA), and the Society of Professional Asset Managers & Recordkeepers (SPARK). 

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

Auto Portability: Who Will Benefit?

Posted by Neal Ringquist on Jun 8, 2017 9:40:10 AM

Auto Portability is the routine, standardized and automated movement of an inactive participant’s retirement account from a former employer’s retirement plan to their active account in a new employer’s plan. By dramatically reducing cashouts and improving retirement readiness, Auto Portability will deliver broad benefits to America’s defined contribution system, its participants and to the entire American economy.

 

But who benefits from Auto Portability, and how? 

 

America’s Mobile Workforce

The ultimate beneficiary of Auto Portability is America’s mobile workforce – the qualified plan participants whose retirement savings are preserved.

 

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

The Fundamentals of 401(k) Cashout Leakage

Posted by Thomas Hawkins on Jun 1, 2017 11:12:10 AM

 

 

 

This video presentation provides viewers with the latest data characterizing the problem of 401(k) cashout leakage, a major challenge that faces 401(k) participants when they change jobs.

 

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Topics: Auto Portability, Cash Outs, America's Mobile Workforce, auto portability simulation, National Retirement Savings Cash Out Clock, 401k leakage

Announcing the National Retirement Savings Cash Out Clock

Posted by Thomas Hawkins on May 12, 2017 12:43:34 PM

 

In 1989, New York real estate developer Seymour Durst wanted to highlight America’s rising national debt, and came up with an idea: the National Debt Clock. Since then, the National Debt Clock has had a physical presence as a billboard near Times Square, serving as a constant reminder to Americans of their government’s ever-growing debt. 

 

In the same spirit as Seymour Durst, Retirement Clearinghouse has now launched a National Retirement Savings Cash Out Clock. While it’s not an actual billboard, this virtual clock calculates 2017 year-to-date cash out leakage from our 401(k) system, highlighting the ongoing problem of cash out leakage in real time. 

 

As of May 12th, the clock indicates that total cash out leakage for 2017 has reached $24.4 billion. If no action is taken to stem this outflow of funds, cash out leakage will eventually reach $68 billion by year’s end.

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Topics: Auto Portability, Cash Outs, America's Mobile Workforce, auto portability simulation, National Retirement Savings Cash Out Clock, 401k leakage

80th EBRI Policy Forum to Address Key Retirement Policy Issues

Posted by Thomas Johnson on May 4, 2017 5:07:14 PM

 

On Thursday, May 11th, the Employee Benefit Research Institute (EBRI) will conduct their 80th Policy Forum, sponsored by the EBRI Education and Research Fund (ERF). Hosted at the 20 F Street, NW Conference Center, the Forum is scheduled from 8:30am to 12:30pm.

Please visit here for the full agenda. To register, please visit here

The 80th EBRI-ERF Policy Forum’s theme is “Retirement Policy Directions in 2017 and Beyond” and takes on critical retirement policy issues, moderated by an all-star lineup of speakers, including:

    • Retirement Plan Portability & Public Policy (Jack VanDerhei, EBRI Research Director and Spencer Williams, Retirement Clearinghouse President & CEO)
    • The Lillywhite Award (Olivia S. Mitchell, Economist and International Foundation of Employee Benefit Plans Professor at The Wharton School)
    • What’s Enough? A Conceptual and Empirical Investigation of Retirement Adequacy (Peter J. Brady, Senior Economist, Retirement and Investor Research Division, Investment Company Institute)
    • Fixing the Saver’s Credit and Other Ways to Help At-Risk Workers (Catherine Collison, President, Transamerica Institute and Transamerica Center for Retirement Studies)
    • EBRI Research – Update (Jack VanDerhei, EBRI Research Director, Craig Copeland, Senior Research Associate and Sudipto Banerjee, Research Associate)
 

Whether you’re an EBRI sponsor, congressional or executive branch staff, a benefits expert, a representative from academia, or affiliated with an interest group, the Policy Forum is an ideal opportunity to examine public policy issues, supported by the latest in EBRI research.

 

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Topics: Auto Portability, 401(k) Consolidation, Plan Portability, America's Mobile Workforce, Retirement Plan Portability

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