In Practice July 16, 2008

Providers Unsuccessful at Retaining DC Plan Assets

Despite the increased focus on the need to capture Baby Boomers’ assets post-retirement, defined contribution plan service providers are largely unsuccessful at retaining participant assets after retirement, according to research from the Diversified Services Group (DSG).
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A DSG press release said this is due to insufficient focus on the retention issue, the inability to reach the plan participant at the appropriate time, and failure to build a relationship with the participant prior to retirement. The research also found that plan service providers miss opportunities to aggregate all of a plan participant’s assets at the point of retirement.

The majority of plan sponsors responding to the research indicated they do not care whether or not their participants take assets out of DC plans at the time of retirement, and more than 80% of participants from the companies interviewed do take their assets at retirement.

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“Since the majority of the firms we interviewed lost between $500 million and $4 billion of defined contribution plan assets last year, it is certainly valuable to explore the intricate interactions and relationships between the plan provider and the plan sponsor and what initiatives can be taken to retain a significant portion of these assets and client relationships,” said James Sholder, a DSG Principal of its Retirement Market Practice, in the release.

The research showed that education at the worksite continues to be mostly focused on asset accumulation rather than creating retirement income.

The syndicated research study, Capturing and Retaining Rollover Assets at the Retirement Inflexion Point, includes findings of two separate, but complementary, research efforts: in-depth executive interviews of defined contribution retirement plan providers and retirement plan sponsors.

Compliance July 16, 2008

Senators Unveil 401(k) Debit Card Ban

Two U.S. Senators have announced a legislative proposal to ban debit cards linked to 401(k) plans.
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Senator Charles Schumer (D-New York) and Senator Herb Kohl (D-Wisconsin) said Wednesday that they oppose the 401(k) debit cards, which are being revived by companies seeking to capitalize on tightened access to consumer credit, according to a Reuters report.

“After retreating over the last few years, companies looking to raid Americans’ 401(k) accounts are making a comeback,” Schumer said, in a statement. “A decade ago, the mere idea of this legislation was enough to get companies to abandon this reckless practice. This time, we want to push this bill all the way to becoming law.”

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Reuters said the debit cards typically carry a monthly bill for using the card that includes a minimum payment, interest and fees, plus additional interest paid to the card vendor.

With the cards, the total amount the user spends each day, either by swiping the card or writing checks, counts as a single loan. That means a user can accumulate multiple loans, each with different repayment terms, the news report said.

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