This week we asked readers how their plan accommodated the changes.
More than half – in fact, nearly two-thirds ( 62.30% ) – of this week’s respondents said they had reduced the mandatory distribution amount in their plans. Actually, that result is almost certainly under-reflected here, since we heard from a number of third-party administrators, law firms, and providers, all of which indicated that nearly all of their plan sponsor clients had opted for that approach. “The majority of our clients (we are a law firm specializing in DC plans, noted one) amended the $5,000 to $1,000. Nobody wanted to go looking for an IRA provider and most really had no idea what they were supposed to do. The few who adopted the Model Amendment were either with a fund provider who would supply the default IRAs or they were owner-only plans where it didn’t make any difference.” Another noted, “As a TPA, our results are about 95% (b) and about 5% (c), although about 10% still haven’t returned the signed copies of their amendments!” Representing the perspective of many plan sponsors who had embraced that decision, one reader explained, “We did not want to take on the added responsibility of choosing an IRA. For most of our participants, it’s a moot point anyway as they almost always respond telling us what they want to do. For the few who don’t respond, we’ll just keep track of the money or the benefit. At least we know they aren’t spending it!” Another said, “We want to keep assets, not push them out of the plan.”
The next most common response was the 24.59% that had left their current distribution provisions in place, opting instead to pick (and monitor) an IRA custodian to deal with the newly impacted distributions, while roughly 7% had gone so far as to eliminate the minimum distribution requirement altogether. One reader in this category noted, “Plan participants can now leave their accounts with the plan forever. Or until they have to start taking minimum distribution payments in their 70’s.” Another said, “Although our plan language stated otherwise, we never made distributions without instructions from the participant. Our initial thought was that we would go the IRA route and be done with these small lump sums. However, after finding that there were very few custodians interested in this business, we changed directions and eliminated mandatory distributions.”
The remaining responses were split between readers whose plans were not impacted by the change, and by those who said they had chosen a plan of action beyond that provided by our survey choices. Generally, the latter group had made plan changes in the past year that negated a need for the change or, like this reader, “reduced the mandatory distribution amount to $1,000 and picked an IRA custodian to handle those between the $1000 and $5000 mark. As of last week we were still struggling to have this set upâ€¦hope they have it ready to go….if not, I’m sure I’ll get some angry phone calls.”
Categorizations notwithstanding, there were a number of classic verbatims this week. The good news is that for most, the change seems to have been a non-issue:
“We received a flurry of phone calls when the employee notifications were mailed but once that died down, it’s been a non-event and has just become the practice – for which I have been grateful.”
“Every time Congress tries to be ‘protective’ of folks’ retirement assets, it confuses the heck out of the masses (to say nothing of the professionals). The only good thing is that these things provide job security for those of us working in the industry.”
“Once again the burden falls on the employer, instead of the former employee using a little common sense.”
“We (b) lowered the mandatory distribution limit to less than $1,000. At this company, this has affected all of….well, no one.”
But this week’s Editor’s Choice goes to the reader who noted, “These little changes are just a part of the thrilling ride we pension geeks get to take through life…slow down with the excitement – we must be the envy of all other professions.”
Thanks to everyone who participated in our survey!