Many people collect ‘orphan’ 401(k) plan balances as they move from job to job. Why should employers care? Helping new employees roll over their accounts from former employers can be beneficial for both parties. The same is true of assisting former participants (who have left your business).
One reason participants orphan their previous employers’ plans is that the process of rolling over an old 401(k) plan balance to a new employer’s plan can be cumbersome. Unfortunately, many employees fail to properly manage their accounts even when they have only one, let alone two or three. If you have employees in this situation, counseling them on the benefits of consolidating their accounts can help improve their retirement planning while boosting morale and engagement.
High plan costs
As an employer, you incur risks from a high number of small, orphaned accounts. They add to plan administration costs and could even trigger a required independent audit. To manage your 401(k) plan participant roster, you may be able to roll over accounts of former participants worth relatively low dollar amounts to an IRA in the participant’s name. But you will need to perform due diligence in selecting an IRA provider and implementing the process.
If your plan does not roll over former participants’ accounts to an outside IRA, consider advising former participants to consult with an independent investment advisor who can help them roll their balances into an IRA. The overall fees that individuals pay on relatively small IRA accounts can be higher than those on accounts held in a 401(k) plan. In addition, depending on the investments available to the participant on the rolled-over funds, the former participant might be better off leaving funds in the 401(k). But this is all worth discussing with a qualified advisor.
The extra mile
Lower administrative costs for the plan and increased savings for participants can benefit your company and its employees (both current and former). For more information and suggestions about controlling your benefits costs, please call us.