New Engine Facilitates 401(k) Plan Rollovers
By: Craig Gunsauley, Employee Benefit News - July 2003
A new software system introduced in March creates a platform that allows
Many job-changers choose to leave their assets in the old plan or pay big penalties to cash out their savings simply because the rollover process is so cumbersome and time-consuming, points out Reginald Bowser, president and CEO of RolloverSystems in Charlotte, N.C.
"Job-changers will usually leave the assets in the old plan or take a lump sum distribution. They will make these choices not because they want to but because they don't know what else to do," Bowser says. "We take a process that typically takes six to eight weeks and reduce it to 20 to 25 minutes."
Some 385,000 employees have access to RolloverSystems through an agreement with outsource service provider Exult. A newly created employer network will expand distribution directly to plan sponsors, who pay a one-time fee plus a nominal annual cost to offer the service to new-hires and separating employees. The company also has a partnership with outplacement firm Career Builder. Financial institutions that capture new IRA business pay all fees for the rollover services. The service is free to participants.
"I absolutely believe that employees need this rollover option," states Barbara Sheridan, president of HR XCEL, a benefits and HR process outsourcing firm in Charlotte that offers the service to client employees.
"A couple of clients had asked us if we could refer their employees to a service that would provide rollovers. The ease of RolloverSystems is what attracted me. They make it very simple for employees to do this."
Employers offering the service to departing employees reduce fiduciary risks and lower the administrative cost and burden of maintaining accounts for separated participants.
In addition, Bowser says his product is being distributed to brokers around the country through financial institutions such as J.P. Morgan Chase & Co., TD Waterhouse Investor Services and Harrisdirect, which compete for new IRA business through the system.
The need for the RolloverSystem engine is huge: Cerulli Associates estimates that some $2.7 trillion will flow into IRAs from
"Because of the sheer size of the rollover market, it will be extremely important for financial institutions to target these accounts and assets," observes Kelley O'Donnell, director of consulting at Cerulli Associates in Boston. "Rollovers will also be increasingly important to
More workers are taking responsibility for saving and investing for retirement, but many plan participants miss out on significant earning opportunities when they leave a
"Unfortunately, many workers make a serious mistake by failing to roll over their
For example, an estimated two-thirds of job-changers aged 30 to 39 take cash payouts from their qualified retirement plan accounts. Cashing out a $10,00
"Rolling over a
"We're giving job-changers a painless way to do the right thing with their hard-earned retirement savings and, in doing so, achieve a more secure financial future."
Plan participants who access the rollovermarket.com portal receive educational information about their qualified plan investments and four choices for assets in their old plan. They can leave assets in the plan, take a payout minus penalties and taxes, roll the balance into a new
"Our goal is to help Americans save more responsibly for retirement," Bowser states. "We don't want to build a brand. That's not our goal at this time. We want to be the engine that facilitates rollover transactions." - C.G.
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