Ensuring lifelong participation in 401(k) plans is beneficial to both plan sponsors and participants. The idea of plan ‘roll-ins’ allow previously existing 401(k) and other IRA retirement plans to easily roll into a new plan once a beneficiary is eligible in a new employer-sponsored plan. The idea of creating a smooth process for these roll-ins were highlighted as part of the Department of Labor’s Fiduciary Ruling last year. While the new presidential administration is deliberating the fate of the increased standards, the successful transition of 401(k) plans is well underway. Under the ERISA Advisory Council (EAC) the “Participant Plan-to-Plan Transfers and Account Consolidation for the Advancement of Lifetime Plan Participation” was published in November 2016, following three years of expert testimony. In essence the recommendations call for increased awareness of roll-in capabilities and utilization. The fact is most plans already accept roll-ins. The PSCA’s 58th Annual Survey reported 98% of all reporting plans currently allow roll-in contributions. The issue is plan-to-plan roll-ins haven’t caught on with plan participants.
What are the benefits of roll-ins?
Roll-ins benefit both plan sponsors and participants. Sponsors see average account balances grow, financial wellness metrics increased, and overall reduction in plan fees. Additionally, the effectiveness of long term retirement planning is often greatly impacted by combining multiple retirement funds. The benefit to participants is equally impressive. Without roll-ins, the majority of participants either leave their plans in place without necessary adjustments or they withdraw from the plan facing tax penalties and depleting the fund. With roll-in assistance participants can consolidate retirement savings, reduce plan fees, and save significantly for retirement.
How to implement roll-ins
While the benefits of roll-ins seem ubiquitous, the implementation of rolling an existing account into another isn’t straightforward; hence, the need for a refined process. First, plan sponsors should ensure existing plans allow for such contributions and should note that distributing institutions often make roll-ins complicated and difficult. The recent support of “auto portability”, an approach that automatically allows accounts with balances of $5,000 or less to rollover, has eased this transition for small accounts. The process for accounts with larger balances is still opaque. As more plan sponsors begin utilizing roll-ins, industry standards will continue to refine the process.
As a plan sponsor how can you increase participant use of roll-ins?
Plan sponsors should consider the following strategies to successfully increase roll-ins with plan participants:
- Communicate the plan features with participants. It’s important for participants to understand the benefits of roll-ins and how combining accounts may create a simplified process that generates higher returns.
- Offer roll-in assistance. A Boston Research Technologies study reported 65% of respondents said roll-ins took a month or longer to implement and that 62% required assistance of some kind. Rolling over a retirement account isn’t easy for the general consumer, make it easier by providing specific roll-in assistance to participants.
- Create an appealing fee structure. Maintain modest fees that can be charged on a per-transaction basis. Or consider including roll-in service fees as part of the plan expense. Either way plan fees stay competitive in the market.