Small Auto Rollover Participants Could Be Opportunity

February 9, 2005 ( - Retirement plan providers should be looking at participants whose balances of $5,000 or less fall under the new automatic rollover requirement as a business opportunity and not a pain in the neck, a new study asserted.

A Brightwork Partners news release said its study found that these participants have higher lifetime earnings potential than many providers now think. Brightwork estimated that 7.1 million individuals became eligible to receive a distribution in 2004 including 3.2 million with balances of $5,000 or less – an $8 billion asset total among those affected by the rollover rule.

“These participants may have low balances and low incomes now,” said Ronald Bush, principal of Brightwork Partners, in the news release. “But they have virtually the same educational profile as all 401(k) participants. Providers who nurture these relationships today could well be rewarded with much higher assets in the future. These are also workers poised to have incomes and assets every bit as impressive as all 401(k) participants down the road.”

Brightwork said its research showed that affected participants in the past three years were:

  • much likely to be women (57% versus 46% of all participants eligible to receive a distribution)
  • much likely to be between the ages of 18 and 29 (31% versus 16%)
  • much likely to have lower personal incomes ($30,900 versus $51,300) and lower household incomes ($54,000 versus $72,800)
  • as likely to have graduated from college (27% in both cases)
  • less likely to have graduate or professional degrees (6% versus. 10%).

The study was based on a national sample of 3,712 participants or former participants who became eligible to receive a distribution from a qualified plan (including lump sum distributions from defined benefit or cash balance plans) in the past three years. It was conducted online in 2004. The research is available through Brightwork Partners on a subscription basis.

For more information, contact Merl Baker or Ronald Bush at 203.487.2000, or .

Come March 28, plans with mandatory distribution provisions will have to have something in place to deal with distributions of more than $1,000 for which distribution instructions aren’t provided (See IRS, Treasury Issue Automatic Rollover Guidance ).