According to Mark Koeppen, senior vice president in charge of strategic rollovers for FPS Trust, disproportionate cost-shifting to accounts with higher balances and increased liability are just some of the issues fiduciaries face when employees move on to other opportunities and leave their qualified retirement plan balances behind.
“It is a big challenge for the plan sponsor community, deciding how to deal with growing plan fees from employees who go off to other jobs, leaving the employer to deal with the cost and paperwork of the retirement account they leave behind,” Koeppen says.
Sensing an opportunity to better serve plan sponsors facing this challenge, FPS Trust has designed a fully automated rollover program that will establish individual retirement accounts (IRAs) for former, non-responsive employees with qualifying balances below $5,000. The solution is also tailored for terminating plans with non-responsive participants.
“We have been focusing a lot on the auto-IRA rollover market in recent years, given how much of a challenge it is for the industry,” Koeppen tells PLANADVISER. “We have been working with plan sponsors, consultants and advisers to try to find solutions to retirement plan leakage. We have learned there are some key points where these stakeholders can come together and create powerful solutions to help protect the assets of retirement plans and participants.”
Among its other initiatives in this area, FPS Trust has moved away from offering a solely FDIC-insured money market-based product set to expand into stable asset funds that can provide a higher crediting rate to the individual account owner after the auto-rollover. Koeppen says the company has also “stripped down fees at the sponsor and participant levels to make this a very straightforward solution.”
“Within our auto-rollover program, the participant simply pays one fee in of $20, and one fee out of $20,” Koeppen says. “There are no other ancillary fees to participants related to statements or searches, and we do not charge trading fees or anything like that. One you get into the higher rollover balances of say $2,500 and up, with our stable asset fund, these participants are actually seeing some real growth with our crediting rate. This shows how the market has matured and how the service providers are seeing more pressure to innovate and to charge a reasonable fee.”
According to Koeppen, his firm is having success promoting the new auto-rollover program in part because plan sponsors are feeling real pressure from the Department of Labor (DOL) on missing participants.
“I have had several clients who have been targeted by full-blown DOL audits on this issue, and the DOL is not backing down from some very stringent demands,” Koeppen says. “In many cases, the DOL auditors have an expectation that a plan sponsor should be able to find every single individual with a balance in their plan, and they won’t leave until you find all of them.”
As Koeppen testifies and others corroborate, plan sponsors are being ordered by DOL auditors to do such things as cold-call potential former colleagues of a missing employee—in other words, plan sponsors are being asked to randomly contact individuals with no direct connection whatsoever to the employer being audited.
“I had one client that went through an audit and had 19 people that she just really couldn’t find, even after a major series of searches,” Koeppen says. “An interesting anecdote, the auditor was pushing the sponsor to sweep these people out of the plan if they truly couldn’t be found, but the plan sponsor had to explain that their plan document wouldn’t allow for that. So this led to some tension with the auditor suggesting the plan document would have to be amended.”
FPS Trust, according to Koeppen, can also help plan sponsors deal with the related and equally frustrating issue of uncashed checks.
“We encourage plan sponsors to be prepared for this issue to become even more important for the DOL, which has already publicly stated that is will be looking closer at the issue of uncashed checks,” Koeppen says. “As a plan sponsor, if you have an opportunity to get out in front of this and deal with these lost people and do something with the uncashed checks, why wouldn’t you do that? Our firm and our competitors will tell you, it is not enough to just blindly rely on your recordkeeper and assume they are taking care of this stuff.”
In Koeppen’s experience, in many cases recordkeepers or third-party administrators may not be properly accounting for the value of uncashed checks as they are calculating figures to report on the Form 5500.
“We see evidence the DOL is taking notice of this discrepancy,” Koeppen concludes. “Fortunately, the leakage question resonates with plan sponsors right now, and there is an organic push for solving these issues. This is a great time to be talking about it because many plan sponsors are thinking about the changes they will have to make in their plan documents for 2019. So, this is the right time to be pushing for a deeper conversation about uncashed checks, missing participants and orphaned small balances.”