Which of the following factored in to your decision on what to do with your old DC plan balance?
30% 27% 26% 26% 25% 25%
When Aon Hewitt/Alight looked at what happened last year
on an asset basis, only 6% of assets got cashed out, Austin says.
Thirty-seven percent went into another qualified employer plan
or IRA, and 58% stayed in the plan. So, higher-balance participants are more likely to stay in the plan. Many of these people
probably are retiring and may intend to take systematic withdrawals from their account balance, he says.
Portability Progress Ahead?
In early September, Retirement Clearinghouse LLC—which
aims to facilitate portability by consolidating or transferring
participant client balances when they change jobs—refiled its
request for additional DOL guidance about the concept of automatic portability. The DOL recently has indicated its willingness
to provide that clarification, says J. Spencer Williams, founder,
CEO, and president of the Charlotte, North Carolina, company.
Williams explains the auto-portability guidance that
Retirement Clearinghouse wants from the DOL. When hired
by an employer, the company seeks a departed employee’s
permission to transfer his account, but many participants with
small account balances do not respond, Williams says. The
company wants the DOL to confirm the prudence of Retirement
Clearinghouse acting on behalf of a non-responding participant
to transfer the balance. “When we direct that transfer, we collect
a fee for doing the transaction. That actually is a prohibited transaction under ERISA [Employee Retirement Income Security
Act], because, according to ERISA, we are acting in our own self-interest,” he says. “So the guidance we are seeking from Labor
is that this is not a prohibited transaction. And we are asking
Labor to also issue its opinion to say that the employer is not a
fiduciary in that transaction.” That DOL opinion would increase
employers’ comfort with auto-portability, he believes.
Meanwhile, Congressional legislation to facilitate porta-
bility appears likely to be introduced in the early fall, says Will
Hansen, senior vice president, retirement and compensation
policy, at the ERISA Industry Committee (ERIC) in Washington,
D.C. Early in September, he said that it probably would resemble
legislation introduced last year to create a national database at
the Social Security Administration (SSA) that lists participant
account balances. That would make it easier for Americans
to track their balances at previous employers, and hopefully
reduce the number of “missing” participant account balances in
With other, commercial, auto-portability concepts, Hansen
says, it is important to always keep participant costs in mind.
“Any auto-portability proposals definitely need to take into
account the possibility of high fees involved with that,” he says.
A Closer Look at Missing Participants
Plan sponsors increasingly use automatic rollovers to transfer
out the under-$5,000 accounts of departed employees who left
without taking action to roll over or cash out their balance,
says attorney Allan Friedland, a principal at Jackson Lewis P.C.
in Hartford, Connecticut. But if a “missing” participant has a
balance of more than $5,000, he says, a plan cannot legally roll
over a benefit without the person’s consent. Most 401(k) participants do request a distribution at some point, but, if not, the
money can sit in a participant’s account until he reaches 70 1/2,
the required minimum distribution (RMD) age. “At that point,
plan sponsors have a fiduciary responsibility to locate those
participants,” he says.
The DOL recently has been investigating defined benefit
(DB) plan sponsors’ efforts to locate missing participants once
they reach the age for required distributions to begin. “At that
point, plan sponsors have to make those distributions,” Friedland
says. “When participants are ‘missing,’ plan sponsors have a
fiduciary obligation to reasonably conduct a search for them.”
The DOL’s investigation has uncovered “a wide range of
Note: Respondents were allowed to cite multiple influencers. Source: 2017 PLANSPONSOR Participant Survey
by the plan
found in print