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

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

The Fiduciary Rule and Participant Transition Management

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

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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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