Terminated Employees – Should 401k Plan Sponsors Encourage Them to Move?

Terminated Employees – Should 401k Plan Sponsors Encourage Them to Move?

There’s a healthy debate about whether 401k and 403b plan sponsors should encourage terminated employees with more than $5,000 in their account to rollover. Of course, plan sponsors can force out smaller accounts but some employees see benefits in retaining larger balances.

Hear from the director of finance at a 401k plan sponsor with 140 employees. On the one hand, larger accounts make a plan more attractive to elite advisors and better record keepers who get paid on assets with costs based on the number of participants. Yet some employees would prefer to cut ties with terminated employees.

Worst case is when employees withdraw and do not rollover assets into a qualified plan accounting for tens of billions of leakage and missed opportunities.

What are your thoughts?


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