Odds are strong that many of your clients’ 401(k) plans could have significantly greater assets even without spectacular investment performance or a dramatic increase in salary deferral rates.
How can this be accomplished?
Simple: Increase the proportion of new hires who roll 401(k) assets from their former employer into their new employer’s plan.
J. Spencer Williams, CEO of Retirement Clearinghouse (formerly Rollover Systems) is on mission to make that happen. He recognizes that most advisers are aware of the general issue, but often don’t focus on the opportunity.
He says the average “roll-in” amount is $18,000. His company recently expanded offerings under the heading of “Assisted Roll-in Service” available to job-changers to:
a) if appropriate (and it usually is) talk them out of cashing out their balances in their former plans (“that money looks amazingly available to them,” he says), and
b) benefit from consolidating their retirement savings in their new employer’s plan.
Retirement Clearinghouse bills itself as “America’s only independent fully-integrated platform designed to manage and execute end-to-end terminated participant services for retirement plan sponsors.”
Williams says the statistics are compelling:
- 40% of workers with account balances under $20,000 cash out of their former employer’s plan (Source: Fidelity Investments)
- Number of DC plan participants changing jobs annually: 9.5 million (Source: GAO)
- Number of “stranded” 401(k) plan accounts: 38 million (Source: Cerulli)
Williams believes employers and advisers also benefit when employees move assets to their new employer. Naturally, if advisers are managing plan assets, increasing the asset pool is a good thing. And for plan sponsors, a larger asset pool can give them access to more services and competitive fees, and increase utilization of their financial wellness programs. That, Williams says, is because employees will pay more attention when they have all of their retirement eggs in one basket -- i.e. their new employer’s.)
He says advisers and consultants, by recommending ways for their clients to achieve these benefits, can only add value to their client relationship.
The basic service costs participants a flat $79 -- a tab plan sponsors could pick up if they chose to, of course. For that the new employee gets an telephone consultation, supplies the required authorizations then Retirement Clearinghouse takes it from there. Williams contrasts that to the average annual $92 recordkeeping bite that employees might be sustaining from orphan 401(k).
The “Assisted Roll-In Service” was pilot tested with a large employer and resulted in a 200% increase in roll-in dollars, according to Williams.
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