SURVEY SAYS: Are You Ready for Automatic Rollovers?

January 20, 2005 (PLANSPONSOR.com) - One of the "buzz" topics from last week's "Plugged In" webinar was the upcoming requirement that plans be ready to accommodate the so-called "automatic rollover" provisions.

Bottom line:   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   (for more information, see IRS, Treasury Issue Automatic Rollover Guidance at http://www.plansponsor.com/pi_type10/?RECORD_ID=27933 ).   This week we asked readers if they were ready for automatic rollovers.

First the good news – with a bit more than two months remaining before the implementation date, nearly 72% of this week’s respondents were either ready (34%) or getting ready (37.5%) for the new requirements.

There were, of course, different ways of getting ready.   A goodly number of those in the “ready” grouping echoed the comments of the reader who noted, We are amending our Plan to reduce ‘force-out’ distributions to less than $1,000.   We are also clarifying the language to make these distributions discretionary rather than mandatory.”   Others were in the same camp as the reader who noted, “We have decided not to change our threshold and have selected our recordkeeper as the IRA custodian for mandatory cash-outs above $1,000.   We are on target to have this ready by the March 28th deadline.”   Another said, “We’re ready.   Amendments were signed yesterday for the 401(k) and Defined Benefit.”

In the “getting ready” category were readers such as the one who said, ” Although our plan provides for mandatory distribution, our practice has been not to make a distribution without instructions from the participant so the mandatory rollover adds an extra step for us.   Although we’re not finding that providers are jumping at the bit to accept these distributions, it will be nice not to continue to pay PBGC premiums on these participants, especially if the premium increases to $30!”   Still another noted, “We’re beginning the process but have nothing in place yet.   But in the meantime, we’re not forcing anyone out.”

A surprising number were straddling that line between “getting ready” and “trusting” their provider to craft a solution (I put those in the getting ready category), including the reader who said, “The only piece missing for us is the IRA product that we’ll use.   Yesterday our ‘plan provider,’ a large financial institution, communicated with us in writing for the first time about the new rules, saying that they were in the process of developing an IRA product for their plan customers to use for automatic rollover purposes, and that they would keep us posted as they work out the details.”   Another said, “We have had discussions with the Savings Plan recordkeeper and will have it implemented by 3/28.   Communications are in the process of being revised.   Our DB plan is another issue.   We have discussed it, but no real decisions or progress have been made.   DB vendors have been of little help…usually the response is, ‘we’ll get back to you on that.’   I’m not sure they even know what the issue is.”   Another noted, “We are ready (at least mentally!), but our recordkeeper has decided not to provide the automatic rollover IRA’s.   So, now we are looking at our options.”

Still another noted, “Once I read the regulations I contacted our provider in early December and was assured that by mid-January they would provide us with informational propaganda detailing various options to deal with this….Ok, so I’m an optimist that they will do most of the work for me…but I can dream….”

However, providers had their fair share of concerns to share as well, including the reader who said, “Judging from the lack of plan sponsor response to our newsletter on Automatic Rollovers, I believe that many of them assume that we as TPA are going to come up with magic solutions for them and tell them what they should do.   In the meantime, we are contacting many of our alliance partners who provide 401(k) recordkeeping and investment platforms for our daily valuation clients, and they are either saying, ‘yes, we’re working on a solution-we’ll get back to you,’ or, as the representative from one daily recordkeeping provider said, ‘I haven’t heard anything about automatic rollovers – what are they?'” 

By the numbers, roughly 12.5% said they were aware, but not much more, of the issue; just short of 10% said they were “trusting their provider to have something in place”; and about 6% said they were “clueless” on the issue.   In the latter category was the reader who said simply, “Huh?”   

Finally, there are those that fall in the category of…getting ready, but…including the reader who said, “We are getting ready, but we think the IRS and Congress are just out of control with new regulations” – as well as the reader who simply said, by way of reference to the new requirement – “Pointless.”

But this week’s Editor’s Choice goes to the reader who observed, “We are getting ready, but we don’t like it.” 

Thanks to everyone who participated in our survey!

C trying to get to B.   We are trying to determine which arm of the corporation will handle the funds.   Does it stay in Trust or go to brokerage operation.


I would have to say "e", we're the trusting category.   And if I get a flurry of emails soliciting swamp real estate, I'll know 'e' is the wrong answer....


(a) We are ready, willing and able.   We've always allowed rollovers of the "profit sharing" portion of employee accounts to qualified IRA's, so it's not a big leap for us.   Most of our partners like to self-direct their funds in the stock market from within their personal IRA accounts.  


Probably a combination of (b) and (c).   We are ready (at least mentally!), but our recordkeeper has decided not to provide the automatic rollover IRA's.   So, now we are looking at our options.


A - We are a corporate trustee (bank) and we have setup to accept automatic rollovers with our IRA department.   Sorry kids, they will only take the plans that we trustee, or on the lighter side, we are open for business.


We are both ready and able as well as trusting our providers to do the right thing in regard to the automatic rollover issues.  

I personally think it is a bad idea since those folks who take their 401(k) of less than 5K generally need the money and would roll it over if they could afford to continue to save these dollars for retirement.  

I believe that timing will be an issue for those accounts that automatically rollover due to some date not being met and that we will have some employee relation issues as a result.   Then I am sure that regulations will be placed by to require us to meet the notification challenges.  

It's never dull.


We will use Fidelity which is administers our plan.    They have established a procedure to handle this but in doing so have delayed a de minimus payouts until Q3.    It seems there is not a lot of money to be made with these relatively small accounts.    Strangely we were solicited by one bank that would gladly take them and then proceed to charge each account with an annual fee etc.  

As usual no single answer a combination of some of c and a lot of e.   Once I read the regulations I contacted our provider in early December and was assured that by mid-January they would provide us with an informational propaganda detailing various options to deal with this…Ok so I'm an optimist that they will do most of the work for me…but I can dream…


We are amending our Plan to reduce "force-out" distributions to less than $1,000.   We are also clarifying the language to make these distributions discretionary rather than mandatory.


We are "(b) getting ready".   Although our plan provides for mandatory distribution, our practice has been not to make a distribution without instructions from the participant so the mandatory rollover adds an extra step for us.   Although we're not finding that providers are jumping at the bit to accept these distributions, it will be nice not to continue to pay PBGC premiums on these participants, especially if the premium increases to $30!


We have decided not to change our threshold and have selected our recordkeeper (Fidelity) as the IRA custodian for mandatory cashouts above $1,000.   We are on target to have this ready by the March 28th deadline.


A) Already made the plan changes to lower the force out to $1000


We're beginning the process but have nothing in place yet.   But in the meantime, we're not forcing anyone out.


Somewhere between (b) and (c).   We have had discussions with the Savings Plan recordkeeper and will have it implemented by 3/28.   Communications are in the process of being revised.   Our DB plan is another issue.   We have discussed it but no real decisions or progress has been made.   DB vendors have been of little help...usually the response is; "we'll get back to you on that".   I'm not sure they even know what the issue is.


We're ready.   Amendments were signed yesterday for the 401(k) and Defined Benefit.


(b) -- getting ready.   It's all relatively simple.   The only piece missing for us is the IRA product that we'll use.   Yesterday our "plan provider," a large financial institution, communicated with us in writing for the first time about the new rules, saying that they were in the process of developing an IRA product for their plan customers to use for automatic rollover purposes, and that would keep us posted as they work out the details.


Judging from the lack of plan sponsor response to our newsletter on Automatic Rollovers, I believe that many of them assume that we as TPA are going to come up with magic solutions for them and tell them what they should do.   In the meantime, we are contacting many of our alliance partners who provide 401(k) recordkeeping and investment platforms for our daily valuation clients, and they are either saying "yes, we're working on a solution-we'll get back to you" or as the representative from one daily recordkeeping provider said, "I haven't heard anything about automatic rollovers - what are they?"  

We are contacting some of the brokerage firms used by our balance forward clients, and they are not interested in providing a rollover solution.   Neither are the banks in town (the ones who even know what we're talking about.) So now we are looking at various internet alternatives.   As today's plansponsor.com   article indicated, some of them want certain volume commitments, and we can't guarantee those volumes.     In the meantime, we can't recommend to very small plan clients that they remove the force-out provisions from their plans until our prototype document provider gets some answers from the IRS - 1) will an amendment to remove the provisions impact prototype status   and 2) does this amendment have to be signed before 3/28.   So we're busy running around in circles while our plan sponsor clients either 1) fail to read our newsletter because they're bombarded with stuff to read or 2) assume we'll hand them an answer.


We're (b) getting ready; we're going to drop the mandatory distribution to $1,000.


I would say that B is the best answer.   We're getting ready but some of our plans may have to amend their documents so the automatic payout is reduced to $1,000 to avoid the rollover provision as they invest directly with mutual fund companies and some of those companies are not set up for the automatic rollover.


b -basically ready to advise our clients how they should proceed


We're A - ready, willing and able, as a provider. We seem to be one of the few - other providers have asked us to do this for them.

Our own plan isn't going to allow it, because the provider isn't interested in the assets. We, as employees of the company, may be facilitating the process for our provider. Makes you wonder, if we're a provider and we can do it, why are we outsourcing our own plan?


We are getting ready, but we think the IRS and Congress are just out of control with new regulations.


We are getting ready, but we don't like it.  


"C"   & "E"    Pointless.


A combination of (b) and (e).....still trying to understand what the intent of this legislation is....doesn't seem to me that it makes much difference where assets are held...in a qualified plan or in an IRA.     Government doesn't get their share until a distribution occurs from either.  


My response is f) other - "huh?"


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