By Thomas Hawkins
Over the past six years, there’s been a steady drumbeat pointing the way to increased portability and in-plan consolidation (“roll-ins”) as the next big strategic focus for defined contribution plans.
While this path may soon lead to the widespread adoption of auto portability, a process that automatically rolls in small balances into a participant's new-employer plan, many plan sponsors are already embracing programs that support roll-ins for all participants, regardless of balance size.
Important signposts along the journey to consolidation include:
- Former PSCA President David Wray stakes out the consolidation “high ground” with his seminal article Consolidate the Balances.
- The Boston Research Group (now Boston Research Technologies) publishes the case study Eliminating Friction & Leaks in America’s DC System, where a program of consolidation is proven to reduce leakage by over 50% at a mega plan sponsor.
- The Federal Thrift Savings Plan -- the world’s largest defined contribution plan -- adopts a policy of supporting roll-ins.
- Treasury Revenue Ruling 2014-09 makes the confirmation of qualified plan status for roll-in contributions much easier for plan administrators.
- A bicameral group of Democratic lawmakers sends a letter to former DOL Secretary Thomas Perez, requesting that the DOL issue guidance for auto portability.
- The Bipartisan Policy Center issues their report “Securing Our Financial Future” - which includes recommendations to facilitate the consolidation of retirement savings for American workers, as they change jobs.
- A group of Republican Senators, led by Sen. Tim Scott (R-SC), sends a similar letter to current DOL Secretary Alexander Acosta, asking for guidance on auto portability.
Meanwhile, leading plan sponsors have already begun to aggressively pursue facilitated roll-in programs for their plans' participants, regardless of balance, as these programs are highly-effective at promoting financial wellness, improving plan metrics and lowering plan costs.
What’s your plan’s position with respect to roll-ins? Are you in, out, or somewhere in-between?
Here’s how to know where you stand.
Consider the following levels of support for consolidation:
1. Level 1: Your plan permits roll-ins.
Fortunately, according to the PSCA’s 60th Annual Survey, 93.6% of plan respondents indicated that their plan accepts rollover contributions from other qualified plans. Check your plan to find out if it does. If it doesn’t, push for the inclusion of this important plan feature.
2. Level 2: Your plan actively promotes roll-ins, particularly at initial eligibility.
Let’s face it: retirement savings consolidation is not going to be on most new participants’ to-do lists. You can help put it there, simply by increasing awareness of your plan’s roll-in feature. Everyone wants to simplify their lives and to save money on fees. This is where roll-in programs really deliver.
Reaching out to participants when they’re newly-eligible also minimizes the likelihood that they’ll cash out their “stranded” accounts and roll them into your plan instead.
3. Level 3: Your plan provides unbiased assistance for roll-ins.
Roll-ins can be daunting transactions, if performed on a do-it-yourself basis, as this DIY roll-in flowchart depicts. This is why participants are so overwhelmingly positive on a facilitated roll-in program. Boston Research Technologies’ recent Mobile Workforce Study shows that your participants are struggling to do roll-ins on their own (most require assistance) and will likely be highly-receptive to the notion of using your plan to consolidate their savings – particularly Millennials and Gen Xers. In fact, 91% of Millennials indicated they would move their IRA balances into the plan if their plan offered a facilitated roll-in service.
An unbiased, external roll-in service will typically operate on a fee-for-service basis, so that all participants – regardless of balance – will be encouraged to take advantage of your plan. Fees can be structured on a “participant-pay” or “plan-pay” basis. The good news is that these fees – if paid for by the plan -- can be considered permissible plan expenses, as long as the roll-in service is available to all participants.
If you’re serious about using your plan as a vehicle for retirement savings consolidation and maximizing roll-in contributions, then consider offering your participants end-to-end assistance, so that roll-ins are an easy choice, made simple and worry-free.