Individual fiduciaries overseeing benefits at companies which sponsor qualified retirement plans are bombarded with data. Too much data or data in unrecognizable formats is regularly discarded as noise, which is subsequently redefined as data that holds no value. Does the plan fiduciary have the skill and time to parse the data into usable chunks of information? Is the plan sponsor able to wrap their thoughts around what is being presented and use it for the benefit of all plan participants? Or, better yet, can a plan sponsor view the data and make their own company plan better for the benefit of both the plan participants and the employer?
Data-dump for Consumption
A recent article at Financial Advisor referencing comments made by Spencer Williams, president and CEO of the Retirement Clearinghouse can be an example of a large amount of data in an unusable format; however, that same data becomes an opportunity for all retirement plan sponsors to improve the services being offered to plan participants. Within the article a point is made that participants’ cashing-out 401(k) accounts during a job change costs the retirement industry $100 billion dollars over a thirty-year period.
Initial Thought
Is this truly a $100 billion dollar loss or could it represent something else? Since a participant currently has a 90 day period to roll those same funds into a tax-deferred Individual Retirement Account (IRA) while maintaining the tax deferred status of the funds, is the money really “lost”? It may be “lost” from the column of 401(k) Plan Assets or Defined Benefit Plans, but those same funds may now be appearing in the New IRA Money column.
Another View
If participant funds were withdrawn from the a 401(k) Plan, but they were used for what the participant felt was a pressing need – the College Education of a child or payment for a life-threatening non-elective surgery – then were the funds “lost.” There was economic value received in each of these examples. So what is the take-away?
Recordkeepers of 401(k) retirement plans hold the keys to unlocking the latent opportunities in a plan available to plan participants and employers. Plan sponsors should be continually educating plan participants on options and always reinforcing the tax impact of early withdrawals from a qualified plan. An employee possessing financial wellness is a happier, healthier and more productive employee. Everyone wins!
