As 2016 draws to a close, most observers will reflect upon the events that have dominated retirement industry news coverage: the Fiduciary Rule, the 10-year anniversary of the Pension Protection Act, and the Presidential election. These events will clearly shape plan sponsors’ activities and priorities for the New Year.
Less publicized, but perhaps more impactful are the recommendations provided in November, 2016 by the ERISA Advisory Council (EAC) on “Participant Plan-to-Plan Transfers and Account Consolidation for the Advancement of Lifetime Plan Participation” – released following three years of expert testimony.
Plan sponsors would be well-served by reviewing the EAC’s Executive Summary and working the message of lifetime plan participation into their participant communications and retirement plan initiatives.
A good place to start is to encourage and facilitate plan-to-plan transfers, known as “roll-ins.”
Accepting rollover contributions, or roll-ins, from other qualified plans is a common, but under-utilized feature with most defined contribution plans. According to PSCA’s 58th Annual Survey of Profit Sharing and 401(k) Plans, 97.6% of all plans accept roll-ins from other plans. However, plan-to-plan roll-ins haven’t yet caught on with the participant base. In Cerulli Associates’ Evolution of the Retirement Investor 2015 report, only 6.6% of assets rolled over in 2014 were plan-to-plan roll-ins.
Deserving most of the blame for the low volume of roll-ins is the complex do-it-yourself plan-to-plan portability process. In 2015, a Boston Research Technologies study on distribution decisions made by America’s mobile workforce found that 62% of respondents indicated they required assistance with a roll-in, while 65% noted that the process took a month or longer to complete. Bottom line, it’s easier for participants to leave accounts behind, or worse, cash out their savings. This complexity and its associated sub-optimal outcomes are why the EAC decided to research plan-to-plan transfers, and to issue recommendations for improving the process.
Concurrent with the EAC’s initiative, Washington has attempted to chip away at the frictions associated with roll-ins.
- In 2014, the IRS issued Revenue Ruling 2014-09 that allowed plans to rely on data from the Department of Labor’s data base of Form 5500 filings for assurance that the assets rolled in come from a qualified plan.
- In June 2016, the Bipartisan Policy Center recommended the establishment of a nationwide cooperative framework for facilitating seamless plan-to-plan transfers. In November, the EAC picked up on this theme in their first recommendation, asking the Department of Labor to explore how they can encourage the development of a “clearinghouse” to facilitate processing of roll-ins to plans.
- Most recently, support has continued to grow in Washington and in the retirement industry for auto portability – a “clearinghouse” approach that automatically moves forward small balances (below $5,000) subject to mandatory distributions, as participants change jobs. Given their pivotal role, recordkeepers will drive the adoption of auto portability – so interested plan sponsors should contact their provider for more details.
Over the same period, a growing number of plan sponsors have experienced success encouraging and facilitating roll-ins of all balance sizes from newly-enrolled participants. Several of these plan sponsors have testified before the EAC, with one “mega” plan sponsor documenting their success in a case study.
What initiatives can plan sponsors undertake in 2017 to encourage roll-ins and promote lifetime plan participation?
A successful strategy for encouraging roll-ins should include the following key elements:
- Make sure that the plan accepts roll-ins. This should be clearly-identified in the plan document, in the section addressing plan contributions. Ideally, the plan should be able to accept roll-ins from IRAs and other retirement plans.
- Clearly communicate the plan’s roll-in feature to participants, particularly at initial eligibility and during annual enrollment. Content on roll-in contributions can be added to an existing communication strategy (printed materials, emails, internal benefits website), emphasizing the benefits of retirement account consolidation, such as ease of management, savings from eliminating redundant recordkeeping charges, and improved retirement readiness from not cashing out those stranded accounts.
- Offer roll-in support, including instructions, personalized assistance and easy access to the required contribution forms. Roll-in support can be delivered by a recordkeeper’s call center, or by an independent third-party service provider, specializing in conflict-free roll-in support.
In addition to the obvious benefits to participants, plans experience significant benefits from a successful roll-in initiative. These benefits include higher average account balances, a lower incidence of small accounts & lost participants, and a participant base that’s more engaged with their retirement plan.
As plan sponsors evaluate their priority queues and initiative lists for retirement plans in 2017, they should take time to understand the EAC’s recommendations for plan-to-plan transfers and advancement of lifetime plan participation, and move forward with a roll-in initiative.
A roll-in program may be the most cost-effective plan improvement initiative that a plan sponsor can undertake in 2017.