There are reasons why a plan sponsor might want to keep ex-participants’ accounts in their plan — but respondents in a recent poll by another organization within the American Retirement Association, the National Assocation of Plan Advisors (NAPA), nonetheless aren’t seeing much interest in doing so.
More than two-thirds (68%) said they had not seen any interest by their plan sponsor clients, at least not yet. However, 18% said they had seen some interest, and another 14% had seen interest — but for larger balances only. One reader observed, “In the event it does come up they usually decide it’s best to get rid of them so they don’t become ‘lost’ participants in the future.”
“We see it being significantly more common in 403(b) plans than 401(k),” noted another reader.
Additionally, three-quarters (74%) of the respondents to this week’s reader poll noted that that level of interest hadn’t changed in the past 24 months. Ten percent had noticed an increase, while about half that number had actually noticed a decrease in interest, and the rest said that the interest level had changed among some plan sponsors, but not all.
“The 5500 number of 120 participants is creating some concern as to the fact that many plans with likely want to amend the plan to allow for partial distribution,” noted one, while another observed, “Fiduciary liability drives concern, especially for the 401(k) market.” One reader acknowledged that, “Finding people years after they leave seems to be the biggest issue,” while another reader pointed out, “The DOL rule may increase the number of participants who leave funds behind and then get lost — eventually this could impact business owner liability.”
As for why the interest had increased (where it had increased), an interest in keeping large balances that keep plan fees lower was the top cited response, with greater paternalism a distant second. On the other hand of the fee issue, one reader explained, “For a small employer on the verge of participant counts being close to 100, the employer wants those terminated participants out of the plan. If they start retaining those participants there will be additional fees for auditing the plans.”
Fiduciary Reg’s Impact
As for the impact of the fiduciary regulation on these interest levels, a plurality (29%) said it was ‘too soon to tell,” while nearly as many (24%) said they weren’t sure. One in five (19%) said they thought it would decrease interest in retaining those balances, while half as many (9.5%) thought it would increase interest. The rest — 18.5% — saw no reason why the fiduciary regulation would have any impact on those interest levels.
That may change, however. As one reader explained, “Because of the increased information regarding plan fees over the last few years, I have seen plan sponsors understand better the difference in a qualified plan environment vs a retail environment. They typically have become more willing to balance the liability of retaining balances against the financial benefit their participants may have from leaving assets in the plan. Particularly, they are interested in long-term employees (retirees) having more flexibility with their funds.”
But plan sponsors are concerned about the ongoing burden of keeping up with and sharing required notices with workers who are no longer associated with the plan. One reader noted that, “As a TPA working with small plans, there is no interest to have non-employed ex-participants retain their assets in the plan. There is very little upside and a large downside for the plan sponsor if the $ is still in the plan at the time of plan termination. There continues to be a cost to maintain a participant, especially to distribute required disclosures.”
Still another saw a potential needle-mover: “I could see a significant uptick in interest if there could be some kind of safe harbor guidance and/or easing of administrative burden with respect to plan notices; it is too difficult to keep up with terminated participants unless everything is done electronically, and that is just not possible with all plans.”