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Automatic rollovers blog posts
The Risky Business of Cashing Out Plan Balances Below $1,000
Writing in the RCH Consolidation Corner blog, Tom Hawkins examines the “risky business” of automatically cashing out sub-$1,000 balances of separated participants. Hawkins writes that the practice, “may seem like an expedient approach to rid a plan of small balances” but “carries undesirable side effects for both the plan and for its participants” including uncashed distribution checks and unnecessary cashout leakage. The best approach, continues Hawkins, is to “adopt auto portability, which delivers all of the benefits but none of the flaws of old-school automatic rollovers.”
Safe-Harbor IRAs Don’t Offer a Long-Term Saving Solution for Plan Participants
Writing in the RCH Consolidation Corner blog, RCH and PSN President & CEO Spencer Williams reflects on the 20-year history of safe harbor IRAs, which were intended to be "a temporary solution to the problem of too many small, stranded accounts in defined contribution plans." Williams provides readers with examples of the dysfunction that has occurred when safe harbor IRAs have failed to act as long-term repositories of savings, or worse, when participants cash out completely. With the advent of auto portability, Williams maintains that the new auto feature will "allow participants to maximize the time retirement savings are invested in their plan accounts—and minimize the time those balances are languishing in underperforming safe-harbor IRAs along the journey to retirement."
The Truth About Old-School Automatic Rollovers
Writing in the Consolidation Corner blog, RCH’s Tom Hawkins takes on “old-school” automatic rollover programs which produce massive amounts of cashout leakage and strand millions of participants’ balances in safe harbor IRAs. While old-school automatic rollovers have one foot in the past, Hawkins writes: “automatic rollovers that incorporate auto portability are the way of the future, with the industry-led Portability Services Network leading the way forward.” For plan sponsors, contends Hawkins, “auto portability delivers all the plan optimization features of old-school automatic rollover programs but goes one key step further” by automatically rolling-in eligible balances for new plan participants.
Harness the Power of Retirement Savings Consolidation
Consolidation is a powerful force in our world, and when it comes to retirement savings, 401(k) account consolidation is inherently efficient and exerts a protective effect on retirement savings as participants change jobs. Writing in RCH’s Consolidation Corner blog, Tom Hawkins offers readers six key facts about retirement savings consolidation, providing ample evidence on the efficacy of consolidation in improving participants’ retirement outcomes.
A More-Enlightened Approach to Uncashed Distribution Checks
No retirement plan sponsor likes the idea of dealing with uncashed distribution checks, nor do they wish to draw unwanted regulatory attention or to become embroiled in costly litigation. Unfortunately, many plan sponsors place themselves in precisely that spot, becoming unnecessarily over-burdened with unresolved uncashed checks, while inviting unwanted regulatory scrutiny and/or legal challenges by having flawed uncashed check policies. In his 2/8/24 article in RCH's Consolidation Corner blog, Tom Hawkins lays out a "more-enlightened" approach to the problem of uncashed distribution checks, seeking to minimize their numbers, while simultaneously steering clear of the “red flags” that could land them in hot water.
Focus Shifts to Plan Sponsors as Portability Network Set to Go Live
Writing in the Consolidation Corner blog, RCH's Tom Hawkins describes the coming "shift" that will occur when the Portability Services Network (PSN) goes live at the beginning of the fourth quarter of 2023. Describing PSN's network-building achievements to date as "nothing short of phenomenal", Hawkins adds that "integration had proceeded apace" and that "plan sponsors will take center stage as they begin to adopt auto portability and witness its tangible results." Plan sponsor adoption will accelerate as auto portability demonstrates its obvious benefits to plans, to participants and to society at large, where adoption will eventually serve as a "positive indicator of a socially responsible enterprise."
The Future is Brighter for Small-Balance Retirement Accounts
RCH's Tom Hawkins, writing in the Consolidation Corner blog, describes the "brighter future" emerging for small-balance retirement savings accounts. Hawkins maintains that these accounts, which he associates with an increased incidence of sub-optimal participant outcomes, will fare much better in the future due to "large-scale, industry-led action on auto portability, and more recently, proactive steps being taken by leading providers to consolidate legacy small-balance IRAs."
The 401(k) “House-Cleaning” to Come
The increase in the automatic rollover threshold from $5,000 to $7,000, as provided for in section 304 of the SECURE 2.0 legislation, will become effective for mandatory distributions made after December 31, 2023. What will be the impact of these provisions, if fully embraced by plan sponsors? One thing is certain – on both a one-time and ongoing basis, far more terminated participants will be subject to the automatic rollover provisions of their former-employers’ plans. Writing in the RCH Consolidation Corner blog, Tom Hawkins explores the impact of an increased threshold that, when paired with the advent of auto portability and the operational status of the Portability Services Network (PSN), could mean that small balance terminated participants will finally come out on top.
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