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Compliance

Plan-to-Plan Rollovers Should Be Easier, GAO Says

The Government Accountability Office (GAO) recommends regulators take certain steps to reduce obstacles and disincentives to plan-to-plan rollovers.

The agency found the current rollover process favors distributions to individual retirement accounts (IRAs). Waiting periods to roll into a new employer plan, complex verification procedures to ensure savings are tax-qualified, wide divergences in plans’ paperwork and inefficient practices for processing rollovers make IRA rollovers an easier and faster choice, especially given that IRA providers often offer assistance to plan participants when they roll their savings into an IRA.   

In a report, the GAO said the Department of Labor (DOL) and the Internal Revenue Service (IRS) provide oversight and guidance for this process generally and can take steps to make plan-to-plan rollovers more efficient, such as reducing the waiting period to roll over into a 401(k) plan and improving the asset verification process. “Such actions could help make staying in the 401(k) plan environment a more viable option, allowing participants to make distribution decisions based on their financial circumstances rather than on convenience,” the agency wrote.  

Plan participants often receive guidance and marketing favoring IRAs when seeking assistance regarding what to do with their 401(k) plan savings when they separate from their employers. The GAO found that service providers’ call center representatives encouraged rolling 401(k) plan savings into an IRA even with only minimal knowledge of a caller’s financial situation. Participants may also interpret information about their plans’ service providers’ retail investment products contained in their plans’ educational materials as suggestions to choose those products.

PLANADVISER staff editors@plansponsor.com