Much has been written recently about the preponderance of lost and missing participants. This predicament, one of the many offshoots of the problem of too many small accounts, is an urgent one for sponsors to address given reports that the Department of Labor (DOL) is focusing on their ability to locate missing participants during plan audits.
Consolidation Corner Blog
Consolidation Corner is the Retirement Clearinghouse (RCH) blog, and features the latest articles and bylines from our executives, addressing important retirement savings portability topics.
Despite differences big and small, all retirement plan sponsors and record-keepers experience at least one common problem—the seemingly intractable incidence of participants who have left behind small accounts in the plans sponsored by their former employers and failed to update their address when they subsequently change residence, a.k.a. missing participants.
Beginning in 2000 and continuing for a decade, American consumers were overtaken by “bacon-mania” – an obsession with the tasty, fried cured-pork treat that included cookbooks, exotic new products and a catchy slogan: “Bacon Makes Everything Better.” Great all by itself, bacon was hailed as having the added virtue of improving the taste of almost any dish it was added to.
How are you hoping to improve yourself in 2018?
The most common New Year’s resolutions usually have to do with personal appearance, health, or behavior—losing weight, exercising more, dieting, quitting smoking, etc. Popular polls indicate that many of us are after a slimmer, fitter body for ourselves after each New Year’s Day.
Similarly, defined contribution plan sponsors are likely thinking about how they can make their plans more attractive and streamlined in 2018.
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.
On October 2nd, 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.
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.
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.
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.
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.