By Paula Aven Gladych
Employees who change jobs can have a major negative impact on defined contribution systems, according to a report by the Boston Research Group.
When employees leave, plan sponsors face increased costs, risks and potential liability resulting from cash-outs, stranded accounts and missing participants. One solution is to offer participants a seamless way to move their 401(k) savings
to another retirement savings vehicle, which can help stem some of these “leakage” challenges, the report found.
Warren Cormier, president of Boston Research Group, said in the report that participants tend to take the path of least resistance when it comes to complex rollover procedures. That means they either cash out altogether or they strand their assets at their former company and forget all about them.
Stranded accounts cost them time and money and complicate their retirement planning, the report said.
On the other side of the fence, employers lose an estimated $1.3 trillion in assets over 10 years from plan leakage.
Boston Research Group recommends that plan sponsors offer roll-in programs to all new hires and to participants who are automatically rolled out of a program. Both types of programs have been shown to reduce stranded accounts and promote savings consolidation.
Automatic rollover programs
with human intervention also help reduce the amount of employees
just cashing out of their retirement plans when they jump jobs.
Plan sponsors should also run periodic, proactive address searches to minimize lost and missing participants and uncashed checks, the report suggested.
Originally published on BenefitsPro.com