Client Service May 6, 2016

Auto Roll-Ins Should Complement Auto-Enrollment

About half of participants cash out of IRAs their small balances are rolled into, and by not rolling these assets into new plans, they are losing the benefit of compounding.
Reported by

Retirement Clearinghouse last year introduced a service that will match participants automatically rolled out of their 401(k) plans with new plans in which they can roll over those balances.

Spencer Williams, president and CEO of Retirement Clearinghouse, says automatic roll-ins should complement automatic enrollment. “I understand why plan sponsors want to get rid of small balances, but putting assets into a safe harbor IRA is like putting them into a landfill,” he said. “Many accounts get eaten up by fees, and many participants cash out these IRAs.”

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Williams told attendees of the Plan Sponsor Council of America’s (PSCA’s) 69th Annual Conference that about half of participants cash out and the average balance of these cash outs is $1,700. By not rolling these assets into new plans, participants are losing the benefit of compounding.  Also, an automatic roll-in would provide participants with all the fiduciary and group purchase protections of Employee Retirement Income Security Act (ERISA) plans.

Williams said 98% of plans accept rollovers from other plans, and he pointed to Retirement Clearinghouse research that found the majority of Millennials and Generation X want all their retirement savings in employer plans. However, participants claim the process is cumbersome and takes a long time.

Williams said there is a need for a service that will take employee information from the safe harbor IRA and send out to recordkeepers to see if they have an active 401(k) account that matches that participant. If they do, assets in the safe harbor IRA will be rolled into that 401(k) account into the default investment alternative.

Retirement Clearinghouse has seen this process reduce participant withdrawals of the automatic rollovers by 50% or more.

He noted that some recordkeepers fear this will violate ERISA rules because participants are not giving consent to this transfer of money, but Retirement Clearinghouse is awaiting an advisory opinion from the Department of Labor (DOL) that says this process using negative consent is OK.
Products May 6, 2016

Actuary Groups Reveal Longevity Risk Assessment Tool

The American Academy of Actuaries and the Society of Actuaries jointly released the Actuaries Longevity Illustrator, offered as a free public service and designed to be easy to use.
Reported by

The new Actuaries Longevity Illustrator released by the Society of Actuaries (SOA) and the American Academy of Actuaries is billed as an easy-to-use online tool that calculates longevity risk on an individual basis and according to a variety of scenarios.

According to the groups, the Actuaries Longevity Illustrator is “available to everyone and provides the user with the likelihood of living various lengths of time, through which individuals and couples can better understand the risk of outliving their retirement income.”

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Explaining the motivation for releasing the new tool, the groups observe that life expectancy is usually given as “a single number coming from a single set of assumptions, and individuals may outlive that estimate.” To combat this risk, the Actuaries Longevity Illustrator provides a range of outcomes illustrating the uncertainty of longevity risk. The American Academy of Actuaries and SOA note that there is a “significant financial risk involved in living longer than expected, which is why retirement planning should include a range of situations and risks that may be encountered.”

Ted Goldman, a senior pension fellow of the American Academy of Actuaries, says the initial idea of making an interactive illustrator tool available as a public service began several years ago, “when we noticed that retirees, and those planning for their retirement, did not have access to information that objectively breaks down the nature of longevity risk that can be readily understood both from a conceptual standpoint and operationally for those who are considering retirement income options.”

As such, the groups designed the Actuaries Longevity Illustrator to “help plan for the possibilities of surviving to a range of different ages both for individuals and couples,” concludes Andrew Peterson, senior staff fellow of retirement systems at the SOA. “Life doesn’t fit into just one scenario or age to reach in retirement. Instead, people should plan for a variety of outcomes—living shorter or longer than expected.”

The tool is accessed directly online at www.longevityillustrator.org. 

«