Report: DoL to Ease Rollovers from Orphaned Plans

February 14, 2006 ( - The US Labor Department (DoL) reportedly plans to unveil new rules this spring to allow financial institutions to release 401(k) assets contained in a defunct plan so participants can roll the money over to another savings program.

According to a Wall Street Journal news report, the new rules would go into effect by year end and would authorize the release of 401(k) assets from a plan sponsored by a company that had gone out of business. Currently, if a company representative is unavailable, the financial institution can’t release the money until the DoL appoints an independent fiduciary – a process that can require court action, the news report said.

The scenario typically affects small company employees since larger firms are more likely to still have representatives in place to deal with corporate issues.   About 2% of all defined-contribution plans are orphaned every year – held by a financial institution without an employer representative to oversee the plan. That leaves about 33,000 workers and roughly $850 million in assets in limbo each year, according to the report

“This is something that our people in the field have been seeing quite a bit,” Ann Combs, assistant secretary of labor for employee benefits security, told the Journal. “More small businesses are adopting financial planning, but when they fail, there is no process in place.”

By contrast, federal law is well equipped to help workers with private sector defined-benefit pension plans, which are insured by the Pension Benefit Guaranty Corporation.

Financial institutions that hold the assets for retirement plans generally require a top executive or a designated representative at each company to authorize rollovers destined for new plans, the news report said. Without this authorization, the banks, mutual funds and other financial institutions can’t release the 401(k) assets to individuals – even if they are sure that the workers are who they say they are.