Among the respondents to this week’s NAPA Net reader poll, roughly 55% said that fewer than 10% of their plan sponsor clients had an option for participants to choose installment payments as a distribution option, while just 18% said that 10-25% of their plan sponsor clients had that choice.
Asked why the plans didn’t offer the option (and given the opportunity to cite multiple reasons), 81% said they didn’t want the administrative hassle, 36% said the option wasn’t included in their plan document, and 28% each noted that participants haven’t asked for it, or didn’t want it.
On the other hand, asked to cite the most common reason, not wanting to take on the administrative hassles was far and away the most common, noted by nearly 64%. “Participants haven’t asked for it” was the sense of just over 18%, with the remainder split bet between “not included in their plan document” and “never really thought about it.”
As one reader explained:
"One of the main problems is that several recordkeepers are not set up to make this a core provision. Another is the on-going plan sponsor responsibility for keeping a participant that would normally take a lump sum distribution. If the DOL considers staying in-plan a better option, they should make it easier, not more difficult for plan sponsors to do so.”
Echoing that point, another noted:
“As a service provider, I'd prefer not to work with installments, so I don't encourage that option. Participants are able to purchase annuities, so not having installments shouldn't be a hardship. Here are my reasons for shying away from installments: 1. Plans collect investment elections for incoming funds, but not for outgoing. Think about the implications. 2. The cost of producing checks, which includes uncashed checks and participants who move and don't provide a forwarding address. 3. Calculating the amounts. 4. Tracking the balance as it approaches $0. Lots of risk and cost and it's hard to recover those costs.”
As for participant utilization, nearly three-quarters (72.7%) said that less than 1% of participants used the option, with the rest indicating less than 25% did (though one respondent did indicate that more than 25% of their participants did.
One reader outlined the rationale for a different way to look at the issue:
“Pay out terminated participants to lower participant count for audit requirement purposes — if not paid out fully, death distributions and QDROs are more difficult to administer than regular distributions and perceived to carry a greater fiduciary risk for plan sponsors.”
Thanks to everyone who participated in this week’s reader poll! Got a question that you’d like to pose to our readers? Post it in the comments section below, or email it to me at [email protected].
