PLANSPONSOR - February/March 2019 - 24

Roll-ins seem time-consuming and complicated for many
participants, the 2015 Mobile Workforce Survey done by Boston
Research Technologies for Retirement Clearinghouse LLC
(RCH) confirmed. The survey asked participants who left an
account balance with a previous employer about their reasoning,
and 21.8% said they were unsure how to do a roll-in to their new
plan, followed by 13.5% who said roll-ins appear very hard to do
and another 16.7% who said they lacked the time to complete
the process. The same research found that 81% of job-changing
Americans either cash out their balance or leave it with their
previous employer.
Over the past three years, roll-ins averaged about 7% of all
contributions into plans among Bank of America Merrill Lynch
clients' participants, says Steve Ulian, a managing director at the
firm in Boston. Many sponsors make little effort to encourage
roll-ins beyond simply permitting them, and he thinks that is
partly because they recognize that " the right thing to do "
with an account balance from a previous employer
varies based on each individual's circumstances
and preferences.
Further, sponsors do not necessarily
believe that encouraging roll-ins will lead
to lower recordkeeping fees because of the
increase in the asset base, Ulian says. " I
think that is blown out of proportion a bit,
because of the way that many plans now pay
recordkeeping fees, " he says. Five or 10 years
ago, most plans paid for recordkeeping through
revenue sharing, but now many plans are moving to
a hard-dollar recordkeeping and administration fee. " So
there's not as much incentive to add assets to a plan as a way to
lower [recordkeeping] fees. "
Ulian also says sponsors may think encouraging roll-ins
will not pay off in lower investment fees. " It's true that, at a very
macro level, plan sponsors could conceivably achieve a level of
scale where they can get lower-cost shares, " he says. " But even
down to the smaller market, investments are becoming more
institutionally priced. And the number of roll-ins into your plan
is most likely not going to push you into a different share class,
or to an asset level where you can get access to a commingled
trust or separate account. So you could argue that there's not a
significant benefit to investment fees. "
How Asset Consolidation Helps
More roll-ins undoubtedly would mean fewer cash-outs by jobchanging
participants. And compared with the other two main
forms of leakage-loan defaults and hardship withdrawals-
cash-outs have the biggest ultimate impact on reducing retirement
readiness for Americans at all income levels, according to
2018 research from the Employee Benefit Research Institute
(EBRI). " In every income quartile, cash-outs dominate the other
two choices by a considerable amount, " says Jack VanDerhei,
director of research at EBRI, in Washington, D.C. " A cash-out is
24 PLANSPONSOR.com February - March 2019
someone's entire account balance, so there is a much bigger impact. "
Cash-outs prove most damaging for Americans at the lowest
income levels, VanDerhei's analysis found. " In the lowest-income
quartile, fully 20% of people not reaching an 80% incomereplacement
ratio would reach it if cash-outs were removed, " he
says. " They tend to have account balances that are smaller and
could benefit the most from consolidating their assets. "
What difference could automatic roll-ins make? Last year,
EBRI also looked at how much Americans' defined contribution
plan savings could benefit if automatic portability got universally
adopted in the U.S. The longer someone has left to participate in
employer plans, it found, the more that consolidating assets into
the current employer's plan helps.
For participants ages 35 through 39 with 20 or more years
of future DC plan eligibility remaining, for example, auto-portability
would mean their average retirement-savings shortfall
would decline by a projected 23%. " The younger you
are, the more times you'd be likely to be saved from
your own instincts to cash out your balance, "
VanDerhei says of automatic roll-ins.
Roll-ins have significant advantages for
participants, Austin says, because account
consolidation makes it easier for them to plan
for their retirement-income needs and keep
their investment portfolio diversified. " When
you think about having all their money in one
place, it gives them a one-stop snapshot to see
their entire retirement-savings balance, " he says.
" It also makes it easier to track, monitor and rebalance
their investments. " Compared with doing an IRA rollover,
he says, a roll-in additionally offers someone the benefits of
401(k) fiduciary oversight and institutionally priced investments.
If a company's ex-employees roll their money into their
new employers' plans, it also can help the original company by
limiting its fiduciary exposure and administrative workload,
Steele says. " When terminated participants leave their money
in their previous 401(k) plan, the plan sponsor still has fiduciary
responsibility for the investment selection and monitoring
covering all of the participants in the plan, including the terminated
participants, " she says. " And the sponsor still has responsibility
for making sure that all participants get the required
notices and statements. "
There is a clear connection between roll-ins and financial
wellness, says Spencer Williams, founder, president and CEO of
Retirement Clearinghouse (RCH) in Charlotte, North Carolina.
The participant and his current employer then have a more accurate
read on his long-term savings and retirement readiness,
Williams says. " If financial wellness is one of your priorities,
why would you not encourage participants to consolidate their
retirement savings? " he asks. " It sort of drives me insane that,
on the one hand, employers can look past the benefits of consolidating
assets in one place and, on the other hand, say, 'We're all
for financial wellness.' "
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