Perspectives August 27, 2008

Perspective: Helping Your Plan Sponsors Avoid the “Cash Out″

It’s painful to watch a friend make a life-altering mistake.
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To a plan sponsor, a terminating employee is often someone they’ve worked with for years, attended holiday parties, met their families and seen them go thorough good times and bad. Plan sponsors are also well aware of the consequences of cashing out a 401(k). Immediate taxes, fees and penalties are high, not to the mention the long-term significant loss of compound interest. Consequences aside, the number of cash outs continues to rise. According to one study, as many as 45% of people cash out their 401(k) when leaving their companies.

For your plans sponsors it’s often a heavy burden to bear, watching terminated employees sell their futures short to ease the short-term pain of leaving a job. Sponsors know that even if the terminated employee has every intention of re-investing in retirement, few will gain substantial traction in that effort.

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A recent study of 395 plan sponsors1 found that employee education and investment knowledge were among the most important services an adviser can provide. Assisting your plan sponsors in reducing cash outs affords you the opportunity to endear your firm to the plan sponsor and differentiate your practice. This can often be accomplished with little or no cost to you by partnering with a company that provides a comprehensive education and rollover program for employees in transition. In researching potential partners, it’s important you find a company that will:

  • Equip participants with the tools they need to make intelligent decisions. For example, a cash-out calculator is designed to educate 401(k) plan participants who are considering cashing out their accounts. It can provide a dramatic visualization of how withdrawing a few thousand dollars today can mean having tens (or hundreds) of thousands of dollars less at retirement.
  • Encourage continued retirement savings by explaining the ramifications of cashing out. Constant and repeated education is key. Because the litigation landscape has changed dramatically this year, with rulings that allow individual plan participants to sue for breach of fiduciary responsibility, it’s prudent to try to mitigate any potential claims through mailings that encourage and equip the participant to take control of their retirement.
  • Extend the participants ability to speak with a knowledgeable expert to answer questions. Make sure that the company has a fully staffed retirement center (or similar) with personnel who are specially trained to help the “unadvised’ investor understand retirement options. Ensure that retirement center personnel offer independent retirement solutions and that their motivation is focused on minimizing cash-outs and keeping these participants invested in retirement.

In short, it’s all about strengthening the relationship with your plan sponsors by helping the terminated participant. The sponsor better serves their terminated employees by providing expert, unbiased education and guidance (at no cost to them). ALL participants, regardless of account size, receive the service they’re entitled to (and are less likely to cash out). And you receive the goodwill and loyalty of the plan sponsor by easing the pain they feel from the ever-increasing number of cash outs. With this approach everyone wins.

Spencer Williams is President and CEO of RolloverSystems, an independent provider of rollover services. Over his career, Spencer’s experience spans starting, building and leading businesses in the financial services industry. Prior to joining RolloverSystems, Spencer served in numerous roles with MassMutual, including founder and CEO of Persumma Financial, LLC (a MassMutual Financial Group company) and as a leader in creating and building the company’s retirement income and rollover IRA lines of business.

© 2008 RolloverSystems, Inc. This article is protected by copyright law. Any redistribution or commercial use in whole or in part is strictly prohibited without the express written consent of RolloverSystems, Inc. The information provided herein is for educational and informational purposes only and should not be considered investment advice.

1 “Growing a 401(k) Practice from the Inside Out,’ Fidelity Investments Institutional Services Company, Inc., March 2008

1 “Growing a 401(k) Practice from the Inside Out,’ Fidelity Investments Institutional Services Company, Inc., March 2008

 

Data & Research August 27, 2008

College 'Education'

Those kids many parents are sending off to college for the first time this month – are part of a diverse, internet-savvy and privacy-free group of nearly two million.
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Researchers say that this Class of 2012 has been assured many times that being the children of baby boomers has made this past year the most competitive for those (almost) willing to sell their souls for admission to the school of their dreams.

For the past eleven years, Beloit College in Beloit, Wisconsin has released an annual report, cataloguing the conditions in which their newly matriculating students were raised and humorously (if painfully) comparing them to those of previous generations. Initially meant to be a “witty way of saying, “watch your references,’ authors Tom McBride and Ron Nief created a “globally reported and utilized guide to the intelligent but unprepared adolescent consciousness.’ For some, their web site’s promise that the list was “not deliberately designed to make readers feel really old!’ might feel like a warning, but for many the list will provide an excuse for nostalgia and a new way to connect with their almost-grown-up children who will soon be heading off in search of higher education.

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This year’s college freshmen will overflow from their campuses, some moved to apartments and even school-rented hotel rooms, and many packed in with three people in a dorm room optimistically designed for two. They are already acquainted with their future roommates, having found each other on Facebook to discuss necessities – who should bring the fridge? – and look for clues to see how well they might get along, taking advantage of easy access to religious and political leanings, favorite books and movies, musical tastes and even personality quirks.

They have always carried bottled water – moving from cancer-scary Nalgenes to recyclable “green’ bottles made of annoyingly thin plastic – and take email, cell phones and Wi-Fi for granted. Even though the so-called “Mindset List’ highlights how different life is now from how it was eighteen years ago, it links the past and present and, surprisingly enough, reminds us that the more things change, the more they stay the same.

– Sara Kelly

The Way Things Have Always Been for the Class of 2012: A Sampling

  • They have always been looking for Carmen Sandiego.
  • GPS satellite navigation systems have always been available.
  • Shampoo and conditioner have always been available in the same bottle.
  • WWW has never stood for World Wide Wrestling.
  • The Warsaw Pact is as hazy for them as the League of Nations was for their parents.
  • Clarence Thomas has always sat on the Supreme Court.
  • Have always known that “All I Ever Really Needed to Know I Learned in Kindergarten.’
  • IBM has never made typewriters.

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