Sunday, February 22, 2009
Are Terminated 401(k) Participants Still Costing You Money?
The answer to this question is almost certainly “yes.” Former employees/participants don’t always focus on moving their accounts to their new employer or a rollover IRA, and it’s easily forgotten by plan administrators. There are at least two ways that this could be costing you money—perhaps a LOT of money:
1) Most vendors charge a “per participant” fee for recordkeeping, which includes anyone with an active account (even former employees).
2) A key pricing consideration for vendors is “average account balance,” that is, the amount of assets divided by the number of active accounts. If you have a significant number of small accounts for former employees, it may be costing you by dragging down the average
And of course there are the fiduciary issues: you are still required to provide the same information and reports to a population which is on the move and not always easy to locate. If you have changed vendors recently, you know what I’m talking about. You spend valuable time and resources tracking down people who don’t even work there any more.
You can start the process with old accounts that are less that $1,000, which you are allowed to force out of the plan. In addition, if your plan document allows, you can roll the $1,000 - $5,000 acounts into IRA’s (your vendor or advisor can organize this). If there are other accounts above these thresholds, you can contact them and suggest a rollover.