Spring Cleaning for Your Retirement Plan: Move Terminated Participants Off Your Books

Are 401(k) accounts from terminated employees bogging you down, but you don’t know the best way to get rid of them? Brad Gilliam, chief marketing officer, RolloverSystems, and Ted Benna, commonly referred to as the father of the 401(k) and chief operating officer, Malvern Benefits Corporation, explain why it’s easier than you think to move these funds off your books.

RolloverSystems, HR Management

It's no secret that in today's world, HR professionals wear more hats than ever before. As a result, the last thing you're thinking about is cleaning up retirement savings plans from terminated employees. But cleaning up those 401(k)s is one of the smartest moves you could make. And it's a lot easier than you think.

Why You Need to Move the Funds…Soon
First and foremost, leaving these accounts on the books cost time and money.

Plan providers usually base their fee structure on average account balances. With people switching jobs more frequently than ever before, combined with the increase in accounts opened due to automatic enrollment (experts anticipate a 20% increase in the number of participants by 2011), it's likely you'll have quite a few of smaller balance accounts left over from terminated participants. These smaller accounts will adversely impact the pricing structure of your plan.

What a waste! And it gets worse.

Compliance Requirements
And if the bottom line isn’t enough to get you going, consider the issues with compliance requirements. Though they vary by plan, regulations like ERISA and Sarbanes-Oxley require employers to maintain regular communication with participants, such as providing a summary annual report, participant statements, notice of submission to the IRS, blackout periods, and changes in providers or investments offered.

The longer the participant has been removed from the company, the harder it is to ensure you have their accurate contact information on file, causing headaches all around when trying to reach them. Tracking down former employees many years after they leave their employer is usually time consuming, costly and frustrating.

Fiduciary Liabilities
Another concern is fiduciary liabilities. By keeping terminated plan participant assets under management, you continue to assume fiduciary responsibility for overseeing the management of these accounts, leaving yourself open to future litigation. You should ask yourself – if an issue occurs, who is more likely to initiate litigation – a current employee, or a former one?

Finally, it's the right thing to do. In your unique role as an empathetic HR professional, you keep your employees' best interests at heart – and that doesn't change just because an employee is no longer with the company. Helping them roll over to an IRA will give them greater control over their assets - and you the benefits to having them off your system.

Rollover Support and Services Make it Easy
With all these disadvantages, why aren't HR professionals scrambling to get these accounts off the books? Because traditionally, it's been a hassle. Until now, the process was hands-on, manual and cumbersome. Each participant required a phone call or other form of communication, and then they need to opt to roll over their funds. Because the manual rollover process can be confusing to the average person, it often demands active assistance from HR professionals, walking participants through the slow, laborious steps, which are laden with paperwork.

But all that has changed.

Outsource Your Benefit Distributions
Now, automated rollover technology and support services handle all of the backend work for HR professionals. Companies specializing in automated rollovers, such as RolloverSystems, help you wade through your files of terminated plan participants and take them off your hands. They conduct most to all of the necessary participant communication, offer a selection of IRA products that fit the participant's financial needs and then lead them through an electronic rollover transaction, cutting the transaction time down to minutes and making the process simple for everyone.

So research your options and see what works best for your company's – and employee's – needs. The bottom line? Your spring-cleaning just got a little easier.

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