Data & Research November 3, 2010

Many Americans Abandon Assets in Old 401(k)s

Nearly 30% of respondents indicated they failed to rollover their retirement savings into an IRA or new 401(k) because they are unsure about the rollover process according to a survey commissioned by ING DIRECT USA's ShareBuilder.
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Respondents were also unsure where to put their money, don’t have the time to roll their retirement money over, or have simply forgotten about their account.  Of these, nearly one in five (18%) have left $50,000 or more in old employee retirement accounts, according to a press release. Nineteen percent have between $25,000 and $100,000 sitting in retirement accounts left at previous employers.     

Twenty-two percent of younger Americans (ages 18-34) with a 401(k) or equivalent account at a previous employer that they have not rolled over are “not sure how to transfer or roll over” an old 401(k), compared to 10% of Americans ages 35-44. Ten percent of younger respondents said they have already forgotten about their old 401(k).   

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More than half (56%) of younger Americans who participated in a 401(k) or equivalent retirement plan at a previous employer have not rolled over any of their accounts, compared to 40% of Americans age 35-44.  

The announcement said nearly a quarter of Americans (24%) with old 401(k)s have between $10,000-$49,999 in these accounts, the survey indicated.  Eleven percent of Americans with 401(k)s they have not transferred, don’t know or can’t remember how much money they left in those old accounts.  Respondents closest to retirement (ages 55 and older) are leaving the largest amounts of money in previous 401(k)s, including 29% with $50,000 or more in these old accounts. 

Some respondents cited advantages to leaving their 401(k) assets with previous employers.  Two in 10 (21%) who maintain a 401(k) account at previous employers do so because they like the cost and/or performance of their investment, and another 12% prefer having their assets in a 401(k) rather than an IRA.   

The survey was conducted online within the United States by Harris Interactive on behalf of ING DIRECT’s ShareBuilder from August 30 – September 1, 2010, among 2,207 adults ages 18 and older, 525 of whom have any retirement accounts from a previous employer that have not been rolled over.
Compliance November 3, 2010

Groups Say SEC Rule Should not Interfere with Payment for Services

The American Society of Pension Professionals & Actuaries (ASPPA) and the Council of Independent Recordkeepers (CIKR) asked federal regulators to consider the impact on retirement and benefit plans of proposed Rule 12b-2 regarding the use of mutual fund assets to pay fees from the sale of mutual fund shares.
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In a letter to the U.S. Securities and Exchange Commission (SEC), the groups said currently, 12b-1 fees play a significant role paying for services like recordkeeping and plan administration and it is critical that a new framework replacing Rule 12b-1 does not unnecessarily impose new burdensome costs, disrupt retirement plan services, or make mutual funds less competitive with insurance or other investment products.   

ASPPA and CIKR offered the following recommendations: 

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  • Provide a Plan Investor “Safe Harbor.” Amend Rule 6c-10 to include a “safe harbor” under which mutual funds need not convert a participant in a participant-directed plan (a “plan investor”) to a share class with no ongoing sales charges, if the plan investor invests in a share class with an ongoing sales charge set at a rate such that the conversion period would be at least 15 years (or 180 months). Transition rules should permit plan investors to be converted to a share class with an ongoing sales charge that satisfies the proposed safe harbor, rather than requiring conversion to a class with no ongoing sales charge.  
  • Preserve Funds’ Flexibility to Pay for Plan Administration and Compliance. Allow funds’ flexibility to pay for services to plan investors, including for administration and other plan compliance services, as well as for distribution services. We recommend the Commission (1) should confirm that fees paid from funds for plan administration and compliance activities will not be deemed to finance “distribution activity” under proposed Rule 12b-2, but (2) should not preclude funds from paying for a mix of distribution and administrative services under Rule 12b-2.  
  • Agency Coordination on 12b-2 regulations with the U.S. Department of Labor. If the Commission considers rulemaking to address concerns that, in paying for services to plan investors, funds may sometimes pay for services to non-fund investors, ASPPA requests the Commission consider (1) the likely costs of requiring funds to inquire about the use of fees paid for marketing, shareholder services, administration and other services provided to plan investors, and (2) trial rulemaking on this matter must be coordinated with the U.S. Department of Labor (“Labor Department”) to avoid potentially significant regulatory inconsistencies.  

 

“ASPPA understands the Commission’s desire to eliminate problematic and excessive broker compensation arrangements that have evolved under the current Rule 12b-1; however changes to address that issue should not undermine the success that servicing and administration arrangements have fostered for participant-directed retirement plans,” the group said in a press release. 

 

The comment letter is here.

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