Even in the most amicable of partings, workers have traditionally lacked the particulars to facilitate a rollover to either an IRA or a subsequent employer’s retirement plan – and employers, particularly ex-employers, haven’t always been keen on retaining those accounts. Is there change afoot when it comes to rollovers?
Among respondents to this week’s NAPA Net reader poll, 8 out of 10 said that the plans they worked with allowed rollovers from other plans, with the rest noting that those plans did, for the most part.
As for whether that had changed in the past five years, more than two-thirds said it hadn’t, although about a third said that it had in some, but not most, cases.
‘Out’ Hows
As for how those plans dealt with outgoing distributions, most (70%) adhered to the legal minimums, cashing out those they don’t have to keep, while the rest said it was “all over the board.” One reader explained, “They don't pay much attention to it until it becomes a big problem with lots of small accounts.”
However, on that front things have undergone change. Fully half of this week’s respondents said it had changed in the past five years, though nearly a third (32%) said it hadn’t really, 1 in 10 simply said “no,” and the rest acknowledged that it had changed in some, but not most, cases. Moreover, nearly three-quarters (73%) said that the plan sponsors they work with are more likely to accept rollovers now than they were five years ago.
Fiduciary Impact?
We asked if readers thought these inclinations might change in the wake of the Labor Department’s fiduciary regulation. About a third said “no,” and 1 in 10 said they would be more likely to take rollovers. And the rest? Well, they opted for, “Who knows?”
On a more personal note, we asked readers what they did with their account the last time they changed employers. The results:
- 58% rolled the distribution into their new employer’s plan
- 27% rolled the distribution into an IRA
- 11% left their account with their former employer
- 4% rolled the distribution into an IRA, and then into their new employer’s plan
We got a number of reader comments along with their survey responses this week, including these:
“Many clients are amending their plan docs to allow for more distribution flexibility (partial withdrawals and installments). This trend started before the final fiduciary rule was announced in 2016, and it hasn't slowed down with the recent delays.”
“Even though most plans are willing to keep assets in the plan, the problem is communicating with termed/retired participants... they do not keep in touch as they should, and then there is the extra burden of the required notices that must be sent, even if you do not have a good address. most sponsors would prefer a ‘cleaner’ plan, or at least some relief from constantly having to try to locate former participants.”
“We’re a TPA and over the last couple years we have taken over making sure the mandatorily distributable are forced out, rather than waiting for the plan sponsor to initiate it (which was pretty rare). As it’s mandated in the plan document, the way we see it, they have to do it to remain operationally compliant. Just one client didn’t want to force anyone out, so we amended their plan accordingly. We did have one plan that didn’t accept rollovers in, but they recently changed to allow that. For the most part, I don’t see any client having a problem with rollovers coming in, nor with when folks choose to distribute upon termination.”
“I work with smaller employers, and a lot of small left-behind accounts may impact pricing because of lower average account balances. There is also a concern about being a fiduciary for long lost employees.”
“I personally do not think plan sponsors should be responsible for assets left behind by terminated employees. I think they should clean up the balances as much as possible. There is too much fiduciary responsibility to have to worry about former employees.”
Thanks to everyone who participated in this week’s NAPA Net reader poll!
