PLANSPONSOR - February - March 2022 - 25

PARTICIPANTS SPECIAL ISSUE | ROLLOVERS
to drive away in at retirement, to encouraging participants to
remain in place, sources say.
" There's definitely been [that] trend [because of] what's
happening demographically, " Webb says. " A very large number
of Baby Boomers will be retiring over the coming years. If plan
sponsors don't encourage employees to keep those assets in
the plan, or at least give them the option, then what's going to
happen is plans will experience a massive loss of assets, and the
recordkeeper will raise their fees. "
When Staying In-Plan
Participants deciding to remain in the plan benefit themselves
but also the plan sponsor. And the sponsor can use the same
logic that convinced them to stay to prompt new hires to roll their
previous plan's assets into the new plan, sources say.
Plan sponsors and recordkeepers have skin in this game,
because recordkeeping fees are based on plan size.
" The larger your account, the more profitable it is to the
service provider, and so [the provider] is happy to have you stick
around if you have a large balance, because its fixed costs are the
same or similar, whether you have $5 or you have $5 million, "
says Worrell.
" If the sponsor's going to
keep people in the plan,
it needs to make sure it
stays in touch with them. "
Webb concurs: " If I leave assets in the plan when I retire-
particularly if I have a larger balance that will increase the
average account balance size in the retirement plan-that will
influence my recordkeeper pricing [because] most recordkeepers
price on average account balance. "
The sponsor, for its part, wants to keep asset amounts high
enough to garner lower administration and recordkeeping fees,
Daley says. This allows the sponsor and participants-both
former and current employees-to gain from scale, Daley says.
" If you look at the data we have on recordkeeping costs,
[those] are heavily correlated to average account balance, so
having materially large account balances helps the entire demographics
of the plan and really helps achieve those cost efficiencies
for larger plans. "
Larger plans, thus maintaining bargaining power with
recordkeepers and asset managers, are able to access institutionally
priced investment products, Daley adds.
And Reish cites a further plus from letting participants
remain in-plan: It may generate employee appreciation.
For participants who have accumulated a " material account
balance, " the benefits are several. Two are lower administration
costs and access to institutional investment products and collective
investment trust options, which " are a byproduct of plan
size, " Daley says.
Participants also have the advantage of the sponsor's fiduciary
oversight of the plan-an advantage they would lose if
they cashed out their assets. Many plans are managed and
monitored by an investment oversight committee, Worrell
points out.
" If the plan sponsor is overseen by a committee, has a
retirement plan consultant and is really taking seriously their
investment oversight, then the participant will benefit from
that oversight, [along with] maybe having access to investments
she wouldn't on her own if she rolled over [her money to an
IRA], " he says.
Participant Education
Besides enabling distributions, plan sponsors have several
means by which to encourage participants to keep their assets in
the plan, sources say.
To Daley, the most important is participant education.
Included in that, from a plan design perspective, is providing
information on " how to be good financial product consumers "
in retirement, he says.
" Much of our education is trying to help them understand
the risks and how, if they do want to leave their employer retirement
plan, they can make good decisions about what types of
providers and organizations they may want to work with, so their
six-figure, seven-figure account balance isn't crippled by heavy
fees, commissions, other things that would reduce how much
they have in retirement, " he says.
Best practices can involve the retirement plan adviser,
recordkeeper and participants themselves.
For instance, the adviser can assist by examining the plan
sponsor process for finding missing or terminated participants
" to ensure they are being given their choices in an unbiased,
comprehensive way, " Worrell says.
Employers also must ensure that, before participants leave,
the plan sponsor has contact information, enabling it to locate
them in the future, Webb says. This can be a challenge when it
comes to all " leavers " -terminated employees and retirees.
" If the sponsor's going to keep people in the plan, it needs
to make sure it stays in touch with them, " Webb says. " Retirees,
of course, if they no longer have any nexus of employment,
they're not the greatest at keeping their addresses up to date,
for example-you don't want them to become missing participants.
If the plan sponsor says, 'I'm going to make an effort
to keep these assets in the plan,' it wants to make an effort to
make sure they stay, and then keep the participants engaged. "
-Noah Zuss
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