What to Look for in a Rollover Provider

Retirement plan sponsors should consider several factors when deciding to include a provision for rollovers, says Terry Dunne, senior vice president and managing director of the rollover solutions group at Millennium Trust.

One feature of using an automated rollover process benefits the separating participants, Dunne says. He points out that the income tax consequence to the participant is identical when moving plan assets into an individual retirement account (IRA). “It’s a pretax situation, and it’s not taxed until it comes out of either plan,” he tells PLANADVISER. “So the individual has a choice as to how and when they want to pay income tax.”

The plan sponsor can gain several advantages from the arrangement, Dunne says. First, the most obvious is the basic question of why the Department of Labor (DOL) established auto-rollover about 10 years ago. “Retirement plans today are not created for the benefit of a former employee,” he points out. “They’re really designed for the benefit of a current employee, so they have the right incentives to join a company and stay.”

However, when employees leave a firm but stay in the plan, they continue to cost the company some administrative fees. They also remain a fiduciary concern for the plan sponsor.

“If you have 100 participants, and 20% to 25% of your employees are leaving in a given year, within four or five years, you’ve turned over the whole population and might well end up with more and more participants that are incurring costs,” Dunne says.

Some participants, notably younger people and renters, move around frequently. Realistically speaking, Dunne notes, they do not always give notice to their former employers, and they wind up as lost to the plan.

The plan sponsor, who has an ongoing fiduciary responsibility to communicate with all participants, whether employees or former employees, with big balances or small, must find a way to keep in contact.

This seems to touch plans of all sizes, though Dunne says it might be less important for very small plans, such as doctors’ offices, that seem to know where people go and may be missing only two or three participants. 

People can do their own searches, he says, to find former employees. “Midsize and definitely large plans are affected,” he says. “The more people that go missing, the bigger the burden on the administrator, and the bigger the cost.

According to Dunne, participants with small balances cost a plan sponsor more. “It makes sense not to keep those small-balance participants in the plan,” he says, because plan sponsors want to manage the plan efficiently and spend the money on current—not former—employees.

Plan sponsors that are looking at different providers for rollovers should weigh the services each offers, and determine how best to serve the needs of the plan participants. For example, is the workforce bilingual? How are calls from participants answered?

Dunne says that Millennium provides bilingual, direct phone support. Most of their staffers speak Spanish and English, but some can speak other languages. The phone support is critical, he feels, since most people do not like automated phone menus. “You want to make sure the individual is treated well, and that the provider is responsive,” he says.

Does the provider have relationship managers to work with the plan sponsor? Dunne explains that some companies will assist with uploading participant data. “There should be a lot of back and forth to make sure it’s easy for the plan sponsor,” he says.

Automated rollovers are surprisingly easy to implement, Dunne says, and a very efficient way to move separating plan participants into an IRA.

On the other side of the equation, Dunne says, the participant also benefits from an automated rollover. In a number of cases former employees have lost touch with money they no longer remember they had. Providers can reunite them with their money, he says, and some providers can assist with the search process. “We’re able to find almost everybody,” he says.