Heading into 2021, plan sponsors were encouraged to improve retirement outcomes for workers by making retirement account portability easier. With increased disruption and shift in the workforce, facilitating retirement portability can make a huge difference. If you didn’t act on your resolutions yet, there’s still time! Here’s what to do.
Facilitate Retirement Account Portability
Benefit News reports that baby boomers nearing retirement will have changed jobs about 10 times during their work lives, making it very likely that they have a smattering of different 401(k) and IRA accounts to cope with—or lose track of. Clearly, this is not likely to produce the best financial outcomes, especially as we are living longer lives. Toward better, 401k Specialist Magazine suggested 2021 resolutions for plan sponsors that would essentially make it easier for workers to manage their retirement accounts as they shift jobs. Given the unprecedented workplace disruptions of 2021, the resolutions are even more critical now then they were a year ago. Specifically, 401k Specialist Magazine suggests that plan sponsors take these three actions:
End Automatic Cash Outs
Sponsors are permitted to automatically cash out accounts with less than $1,000 which have been left behind by former participants, and most do so—almost 90% of plan sponsors have a policy to cash out terminated-participant balances… While permitted, the practice sends a very bad message. Sponsors have an obligation as fiduciaries to make decisions that are in participants’ best interests, and automatically cashing out small, stranded accounts seriously harms the retirement prospects for the holders of those accounts—especially if their contact details are out-of-date, and as a result, they don’t receive the check or related notices in the mail.
Offer Assisted Roll-Ins
With industry research showing pent-up demand among participants for a comprehensive roll-in solution for their prior employer 401k accounts, sponsors should fulfill their fiduciary duty by offering consolidation/roll-in assistance as part of their financial wellness programs, particularly for new hires…With the vast majority of sponsors not having to make any changes to their plans in order to offer roll-in assistance, all they must do is to actively promote their plans as desirable destinations for consolidated retirement savings—calling attention to the investment options and other benefits that they and their record-keepers can provide participants.
Pilot a Distribution Assistance Program
When changing jobs, participants typically receive a termination notice outlining their options for the retirement account… Most participants take the easiest paths—cashing out or leaving the balance behind—as neither decision involves the headache of processing contribution forms for an IRA or the new employer plan…One solution is to provide newly terminated participants access to an independent fiduciary to help them with the fiduciary decision. Add to that a transaction program that allows the participant to easily implement the decision. That combination can be implemented at no cost to the sponsor, very little cost to the participant, and will mitigate fiduciary risk by reducing missing participants and lowering cash-outs.
The Importance of Fiduciary Liability Insurance
Under ERISA law, plan sponsors are required to act in the best interests of participants. Given the many—and expanding–responsibilities associated with this high duty of care, it’s best for plan sponsors to protect themselves—and their personal assets—with fiduciary liability coverage. Even the allegation of a breach of fiduciary duties can be financially ruinous. There’s no need to go it alone. Colonial Surety’s fiduciary liability insurance covers your business—and you as the fiduciary—against claims of alleged or actual breaches of duty in connection with the employee retirement plan. Annual premiums total less than just an hour or two with an expert ERISA attorney if a lawsuit lands in your inbox. Colonial’s fiduciary liability insurance provides plan sponsors up to $1,000,000 of coverage—and includes cyber liability insurance too. Choose Your Plan Sponsor Protection Package Here.
Good To Know: Employees Want Portability
Retirement account portability is a benefit that employees want. Studies show that“when given an easy way to do so, participants would prefer to keep these balances in the retirement system moving forward with them as they change jobs.” Keep in mind too, that employees who are less stressed do better at work—and that demonstrably benefits the bottom line of businesses. As 401k Specialist emphasizes, by facilitating the portability of retirement accounts, plan sponsors can create a powerful ripple effect.
Resolve To Be Compliant—and Protected Too
As we head toward 2022, don’t forget that you are required to have a current ERISA Bond to protect the assets of the retirement plan from theft. Don’t stop there, though: the ERISA bond required for the retirement plan does not cover you—the plan sponsor— as the fiduciary. Can you picture what even the allegation of a fiduciary breach would take from you? Money, time, reputation: without protection, all are at-risk.
Let’s get you covered, comprehensively and affordably—that’s what plan sponsors across the country rely on from Colonial Surety to do. Our 2 or 3-year packages provide the greatest overall savings and protection, including both fiduciary and cyber protection. Colonial even includes extended coverage to ensure your ERISA bond remains US Department of Labor compliant. Colonial makes it so easy and reasonable to secure this coverage that you can do it now, right here: Complete Plan Sponsor Package Here.
Colonial Surety Company is in business all across the USA. We are rated “A Excellent” by A.M. Best Company and U.S. Treasury listed. Serving customers since 1930, Colonial Surety we are the trusted source for the bonds and insurance needed across the pension industry.We help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time.