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 (see “GAO Encourages Easier Plan-to-Plan Rollovers”).
“I think plan-to-plan transfers are a hidden gem and an overlooked tool in the industry’s toolbox,” Spencer Williams, CEO of Retirement Clearinghouse, told PLANSPONSOR. Williams said data from the Employee Benefit Research Institute (EBRI) indicates if the participant cash-out rate was cut by 50% across DC plans, it would add about $1.3 trillion to participants’ retirement savings jackpot.
One solution is for employers to offer new employees a roll-in service. Williams noted there are more than nine million employees with DC plan accounts that change jobs every year. A roll-in service would address the deterrents mentioned in the GAO report. All the employee has to do is sign the paperwork and then rollover experts complete the verification that the assets are tax-qualified and coordinate the timing of the rollover. Retirement Clearinghouse has experienced a roll in rate of 33% with clients that use its service, Williams said—significantly higher than the 10% typical rate mentioned in the GAO report. Plan-to-plan rollovers not only improve retirement savings for employees, but they increase the scale of the plan for employers, which can improve costs. “It’s a win-win for everyone,” Williams concluded.