By Tom Hawkins | May 23, 2022

Selecting an automatic rollover IRA provider used to be easy.

Most 401(k) plan sponsors simply accepted the solution offered through their recordkeeper or TPA. Others performed due diligence, using a limited set of criteria including basic fees, investment options and accountholder service.
Few, however, considered the grim realities facing terminated participants forced out into safe harbor IRAs, including excessive cashouts, forgotten accounts, hidden fees, and barriers to exit.

Now, the game has changed for automatic rollover IRAs:

  • Auto portability is making plan-to-plan portability the default option, eliminating the “dead-end” safe harbor IRA
  • Research demonstrates the value of education & assistance in lowering cashout leakage and improving participant outcomes
  • The presence of excessive cashouts, fees and barriers to exit can no longer be considered “fiduciary-friendly”

Considering these new realities, there are five new automatic rollover IRA criteria that plan sponsors should consider incorporating.

#1: Support for Portability
An automatic rollover IRA provider should:

  • Support auto portability
  • Have a dedicated team of consolidation specialists for on-request portability
  • Support all portability options, including:
    • To current plan
    • To existing or new IRA
    • To an annuity

#2: Fee Transparency and Conflicts of Interest
An automatic rollover IRA provider should:

  • Offer pay-as-you-go monthly, vs. annual, up-front account fees
  • Have no hidden or “miscellaneous” fees
  • Have no excessive management fees (ex. – 350 bps) for default investment funds
  • Provide complete transparency regarding any revenue share payments to third parties
  • Put all fees and third-party relationships in writing


#3: No Barriers to Exit for Accountholders
An automatic rollover IRA provider should:

  • Assist, not impede consolidation of savings
  • Have no investment fund lockups
  • Have no requirement for signature guarantees
  • Offer expert support for consolidation, vs. all consolidation performed on a “DIY” basis


#4: Provision of Full Program Results
An automatic rollover IRA provider should:

  • Provide transparent historical and ongoing reporting on:
    • Automatic rollover IRA cashout rates (should be <25%)
    • Consolidations performed, by destination (current plan, existing IRA, new IRA, annuity)
    • Average or median safe harbor IRA account duration

#5: Commitment to Ongoing Account Servicing
An automatic rollover IRA provider should:

  • Have a commitment to ongoing account servicing
  • ­Provider should not have a record of periodically “selling” tranches of safe harbor IRA accounts to other IRA service providers, where previous commitments are broken after the accounts are transferred

The Bottom Line
With the advent of auto portability and other important features, the game has changed for automatic rollover IRAs, making it incumbent upon plan sponsors to fundamentally “re-think” these programs. By incorporating these five new criteria, plan sponsors can ensure that their automatic rollover IRA programs are fiduciary-friendly, while dramatically improving participants’ retirement outcomes.

Back