GAO Recommends Changes to Automatic Cash-Out Rules

The Government Accountability Office (GAO) says its analysis of retirement plan account balances that have been automatically rolled into individual retirement accounts (IRAs) shows that because fees outpaced returns in most of the IRAs analyzed, these account balances tended to decrease over time. 

“Without alternatives to forced-transfer IRAs, current law permits billions in participant savings to be poorly invested for the long-term,” the GAO contends in a report. The office recommends that Congress consider amending current law to permit alternative default destinations for plans to use when transferring participant accounts out of plans. 

The GAO also expressed concern about the provision in law that allows a plan sponsor to disregard previous rollovers when determining if a balance is small enough to force out. For example, a plan can force out a participant with a balance of $20,000 if less than $5,000 is attributable to contribution accounts other than rollover contribution accounts. The office recommends Congress consider repealing that provision. 

In its report, the GAO noted that retirement plan participants may have difficulty keeping track with their retirement savings accounts, particularly when they change jobs, and because key information about lost accounts may be held by different plans, service providers, or government agencies, and participants may not know where to turn for assistance. It recommends that the Department of Labor (DOL) convene a taskforce to explore the possibility of establishing a national pension registry.