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401k Plan Assets of Former Employees

401k Plan Assets of Former Employees

401k plan assets of former employees can lead to a tale of two distinct emotions. 401k plan assets of former employees are treated as being attractive to retain within the qualified plan structure with some employers. In other instances, plan sponsors prefer to shed 401k plan assets from the plan when there is a separation of service by a plan participant. It can be confusing for plan fiduciaries to know exactly how they should treat 401k plan assets of former employees. At the conclusion of a Plan Sponsor University (TPSU) Fiduciary Education Program held at the University of Minnesota in Minneapolis, Minnesota, TPSU Founder and CEO, Fred Barstein spoke with Eric, Compensation and Benefits Manager at 2,200 employee firm.  Eric maintains, a leadership role within the firm and the company maintains a very strong position on how to address 401k plan assets of separated employees who choose to keep 401k plan assets in the retirement plan of their former employer. Eric’s firm is primarily interested in doing what is best for the plan participants.

Full Transcript Here

Fred Barstein:
This is Fred Barstein with 401K TV, just completed a TPSU Program at the University of Minnesota. I’m here with Eric, who sat through the entire six hours. Welcome, Eric.

Eric:
Thank you.

Fred Barstein:
Okay, if we ask you a few questions today?

Eric:
That would be wonderful.

Fred Barstein:
Okay. Great. Before we do, just tell our audience a little about yourself and your organization.

Eric:
My name is Eric. I lead the Compensation ad Benefits Team for a local manufacturing company of 22,000 employees.

Fred Barstein:
Great. So, one of the issues that come up regularly at TPSU is, the separated, terminated employees, should you keep them in, or should you encourage them to be in the plan, or should you try to get them out of the plan? When that issue came up today, someone said, “Yeah, no, I want to get rid of them. I just don’t want to deal with them,” but you had a different opinion. And what was that?

Eric:
So, while there’s a concern of communicating with terminated employees, the benefit is the asset value they have, and the distributions from the plan. That way you could have better fee structures, and communication too.

Fred Barstein:
Right. So, the more assets you have, the better leverage you have with your record keeper, and your providers, and even money managers, right?

Eric:
Correct.

Fred Barstein:
It might also benefit the former employees to keep that money in the plan, right?

Eric:
They have the relationship with our provider, and with that too it’s that consistent message, they know the right phone number, and they have that relationship with them.

Fred Barstein:
Right. And they also might be paying lower fees, because they’re part of a pool, versus on their own as well.

Eric:
That is correct.

Fred Barstein:
So, your group does not necessarily take a lot of effort to get rid of, other than the smaller, the 5,000 and below, which you can do automatically.

Eric:
That is correct. We’re not forcing employees and retirees, but what’s best for them.

Fred Barstein:
Right. To do that. Well, great. Last question. A couple of things you learned that you may want to take back and institute when you go back to the office?

Eric:
This was a great session, just for networking. Not only within the Twin Cities but the state of Minnesota. As well as looking at the auto-escalation rate, and trying to squeeze that out further, just so employees will be saving even more. The benefits of that is-

Fred Barstein:
You have auto-escalation, right?

Eric:
We do.

Fred Barstein:
And I know the initial question, what’s the right number to cap it at and to push people too. Did it change anything today?

Eric:
It did. I think it’ll force a good debate back at the office, and just really look at our employee base, what are we saving, and what is that right number?

Fred Barstein:
Very good. Well, thank you for your time, Eric.

Eric:
Yeah. Thank you very much.

Fred Barstein:
And thank you for watching 401K TV.

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