subject: Lowering The Cost Of Retirement Plans [print this page] When an employee leaves a job, they often leave their 401k behind. This leaves retirement plan sponsors, advisors and administrators in an awkward situation. Plan sponsors continue to pay advisors and third party administrators to handle these accounts, despite the fact that the employee no longer works for the company sponsoring the plan.
In 2005, the IRS instituted rules to govern Automatic Rollovers. The rules state that accounts belonging to a former employee with a vested balance of $5,000 or less can be automatically rolled over to an IRA. These Automatic Rollover IRAs allow plan sponsors to keep retirement plan costs reasonable, and allows advisors and TPAs to do the right thing by their clients.
An Automatic Rollover IRA works to the former employees advantage. A 401k Rollover gives the accountholder greater access to their money as well as more investment options.
Rollover IRAs can also be performed for former employees with vested balances of more than $5,000. However, in this instance the accountholder must voluntarily perform the 401k Rollover.
For plan sponsors, the obvious benefit is saving money. There are other reasons:
Save time and resources that are normally be spent locating and dealing with former employees
Reduce your fiduciary liability to lawsuits from former employees
For advisors and TPAs, the driving force behind performing 401k Rollovers is to do whats best for the client. By taking advantage of Automatic Rollover IRAs, an advisor or TPA can solidify their relationships with clients by saving them from the hassles of former employees.
Removing former employees from a retirement plan also represents extra work for plan sponsors, advisors and TPAs. Some companies, like InspiraFS, specialize in performing these services for retirement plan professionals. InspiraFS will handle all of the required notifications and outreach for these.
Another way for sponsors to save money on their retirement plan is to switch to a Payroll Deduction IRA from a 401k. Payroll Deduction IRA plans cost nothing to start for a business and feature many of the same benefits to employees as a traditional retirement plan.
InspiraFS administers Payroll Deduction IRA plans for companies of any size, as well as other IRA-based retirement plans.
