Federally Mandated Retirement Clearinghouse Closer to Reality?
One of the benefits of a 401k plan is that workers can take their money with them when they leave, unlike traditional pension plans. But that benefit can also be a challenge with people switching jobs every four years, more frequently for younger workers, leaving a trail of orphaned accounts that are hard to manage and often abandoned causing severe leakage.
Sen. Elizabeth Warren Dem-Mass. and Sen. Steve Daines Rep-Mont. introduced a bill which they call a “retirement lost and found” that would create a database of old retirement accounts allowing workers to better manage their disparate accounts by either consolidating their old accounts into their current 401k plan or rolling it into an IRA. Smaller abandoned accounts would automatically be put into target date funds rather than cash which is where they are usually housed. Forty percent of workers cash out small 401k accounts when they leave their employer.
It’s also a benefit for employers sponsoring a 401k plan stuck having to manage small accounts that make their plan unattractive plans and more expensive for active participants. Unless the account is less than $5,000, it must be maintained.
Though a national, federally mandated solution would be ideal, there is a private solution today called the Retirement Clearing House (RCH) that helps plan manage abandoned accounts as well as encourage roll-ins. Requiring record keepers to cooperate in a national database would make this process easier.
According to research commissioned by RCH conducted by Boston Research Technologies, as many as 73% of plan participants would be willing to use and pay for an employer sponsored roll-in service which can take as much as two months to accomplish when employees do it on their own. And as many as 91% of employees would prefer to roll-in their previous balance rather than keep it in their previous employer’s plan or roll it into an IRA. Click here for more on usage of roll ins.
Why should employers care? Employees that have consolidated their retirement accounts will be able to better manage their finances spending less time at it and feeling more financially secure and less stressed resulting in better productivity. In addition, more assets in the retirement plan and higher account balances means more leverage and better service from their record keeper with little if any increased liability or costs.
Latest posts by Fred Barstein (see all)
- 401k Education and Communication Impacts Participation Rates - September 4, 2019
- Clever Ways to Engage Senior Management in your 401k Plan - June 4, 2018
- 401k Loans: Can Redesign Help? - April 23, 2018