Blog

The Pension Protection Act of 2006 created a safe harbor for retirement plan sponsors to automatically enroll employees in their plans. This provision was designed to help plan sponsors and participants over the long term, and it has—but it also unintentionally fueled a surge in small accounts, hurting both constituencies.

Retirement plan sponsors can reap significant rewards from the automated, two-way flow of retirement savings accounts into and out of plans. This “automated portability” spawns important downstream benefits for sponsors—but sponsors can only capture them by choosing to recycle mandatory distributions rather than continuing to dump them into an already sizable landfill of micro-balance safe harbor IRAs (see Employee Benefit News previous blog post titled Why Dump Mandatory Distributions In A Landfill When You Can Recycle?). This article focuses on one of those benefits—the decrease in plan costs obtained through the increase in a plan’s average account balance.

In her 4/8/15 MarketWatch article, Alicia Munnell -- Boston College's Director, Center for Retirement Research -- comes down squarely in favor of a clearinghouse for the nation's 401(k) system, solving the dual problems of forced transfers (less than $5,000) and multiple retirement savings accounts. Ms. Munnell cites the efforts of RCH in developing workable solutions, as well as the progress made by Spencer Williams and Tom Johnson in advancing awareness and influencing public policy.

Mandatory distributions of small 401(k) accounts when participants separate from service provide many benefits for plan sponsors, including lower administrative costs and higher average account balances. However, these “automatic rollovers” also indirectly cause billions of dollars to leak out of the U.S. retirement system every year through cash-outs.

Have you ever tried to fix a leaky kitchen faucet yourself? If so, the task probably seemed simple at the outset. However, if you’re not an experienced plumber, you may have inadvertently compounded the small problem of a leak — perhaps by over-tightening a nut, pinching the washer, stripping the threads, or worst of all, splitting the pipe — and unintentionally made the situation worse, as well as expensive to fix.

Initiatives by employers to drive up savings and enrollment in their retirement plans over the past decade have generally followed the same three-pronged approach — participate, save, diversify.

New Year’s resolutions aren’t just for dieters and exercisers. The start of a new year is an ideal time for retirement plan sponsor to assess the effectiveness of their plan. Virtually all plan sponsors have areas that are ripe for improvement. Here are five resolutions to make and keep in 2015 to ensure you have a smoothly-running, cost-effective plan than succeeds at preparing employees for retirement.