Compliance April 5, 2017

EBRI Calls for Auto Plan Portability

If workers could automatically roll their 401(k) plan over to a new employer, the Institute says this could generate an additional $2 trillion in retirement savings.
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The Employee Benefit Research Institute (EBRI) estimates that if Americans were able to effortlessly, automatically roll their 401(k) balance over to a new employer every time they switch jobs, they would have an additional $2 trillion in retirement savings by age 65. This would be because they do not cash out of their plans when switching jobs. It underscores the value of auto portability for helping to bridge the retirement savings shortfall, EBRI says.

Jack VanDerhei, research director at EBRI, presented these findings at a recent Financial Services Roundtable, “Retirement Plan Portability & Public Policy.”

“Auto portability is needed now more than ever to help tens of millions of hardworking Americans improve their retirement readiness,” says Spencer Williams, president and CEO of Retirement Clearinghouse, who also spoke at the forum and whose firm has developed an auto portability recordkeeping system. “Leading  industry organizations and government officials are beginning to recognize that auto portability, which can be readily adopted by plan sponsors with minimal effort, is critical for plugging cash-out leakage from the 401(k) system and preserving savings already set aside for retirement—particularly for low-income and younger workers.”

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EBRI’s research also found that if all participants with less than $5,000 in their retirement accounts had their account automatically rolled over to a new employer, they would have an additional $1.5 trillion in retirement savings by age 65. This would reduce the retirement deficit for those between ages 35 and 39 by 20%. Because of the long time in their savings horizon, Americans between the ages of 25 and 34 would experience the largest increase in savings, particularly those in the lowest income bracket.

The Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings has recommended that the nation create a private-sector retirement security clearinghouse that could handle auto portability.

Compliance April 5, 2017

Majority of Plan Auditors Handle Five or Fewer Audits

This lack of experience can lead to mistakes, ERISApedia.com says.
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Seventy-four percent of certified public accountant (CPA) audits of retirement plans are handled by auditors who handle five or fewer plans a year, ERISApedia.com found from an analysis of its database of 88,900 plan audits.

Thus, just because a retirement plan adviser and sponsor turn to a CPA auditing firm, expecting it to handle an audit seamlessly, it is important to find out how many plan audits they handle each year, ERISApedia.com says. Only 25% of the 7,600 audit firms working with retirement plans, or 1,900 firms, handle six or more plan audits a year, the research company found. Seventeen percent conduct between six and 20 audits a year, and a mere 8% oversee 21 or more audits a year.

Selecting a truly experienced, entrenched plan auditor is all the more important in light of the fact that a recent study by the Department of Labor (DOL), “Assessing the Quality of Employee Benefit Plan Audits,” found that there is “a clear link between the number of benefit plan audits performed by a CPA and the quality of the audit work performed.” As a result of its findings, the DOL has directed its internal auditors to target plan audits on those that are handled by CPA firms will smaller employee benefit plan audit practices.

And mistakes do happen. That same DOL report found that 39% of plan audits contained major deficiencies, putting $653 billion and 22.5 million retirement plan participants at risk.

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