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Safe harbor IRA blog posts
Dressing Up Traditional Automatic Rollovers
Writing in the Consolidation Corner blog, RCH’s Tom Hawkins describes learning about the existence of so-called “world-class” automatic rollover IRA services which lay claim to unspecified, premium features. In his article, Hawkins characterizes them as “old-school, traditional automatic rollover IRAs” which place participants in high-fee, safe harbor IRA “landfills” where their small balances languish. What’s needed, writes Hawkins, is “not faux fancy features – it’s a low-fee, transitional safe harbor IRA that preserves small-balance retirement savings for only as long as they can be consolidated into a current-employer’s plan or into another IRA.”
The Risky Business of Cashing Out Plan Balances Below $1,000
Writing in the RCH Consolidation Corner blog, Tom Hawkins examines the “risky business” of automatically cashing out sub-$1,000 balances of separated participants. Hawkins writes that the practice, “may seem like an expedient approach to rid a plan of small balances” but “carries undesirable side effects for both the plan and for its participants” including uncashed distribution checks and unnecessary cashout leakage. The best approach, continues Hawkins, is to “adopt auto portability, which delivers all of the benefits but none of the flaws of old-school automatic rollovers.”
Safe-Harbor IRAs Don’t Offer a Long-Term Saving Solution for Plan Participants
Writing in the RCH Consolidation Corner blog, RCH and PSN President & CEO Spencer Williams reflects on the 20-year history of safe harbor IRAs, which were intended to be "a temporary solution to the problem of too many small, stranded accounts in defined contribution plans." Williams provides readers with examples of the dysfunction that has occurred when safe harbor IRAs have failed to act as long-term repositories of savings, or worse, when participants cash out completely. With the advent of auto portability, Williams maintains that the new auto feature will "allow participants to maximize the time retirement savings are invested in their plan accounts—and minimize the time those balances are languishing in underperforming safe-harbor IRAs along the journey to retirement."
The Truth About Old-School Automatic Rollovers
Writing in the Consolidation Corner blog, RCH’s Tom Hawkins takes on “old-school” automatic rollover programs which produce massive amounts of cashout leakage and strand millions of participants’ balances in safe harbor IRAs. While old-school automatic rollovers have one foot in the past, Hawkins writes: “automatic rollovers that incorporate auto portability are the way of the future, with the industry-led Portability Services Network leading the way forward.” For plan sponsors, contends Hawkins, “auto portability delivers all the plan optimization features of old-school automatic rollover programs but goes one key step further” by automatically rolling-in eligible balances for new plan participants.
Harness the Power of Retirement Savings Consolidation
Consolidation is a powerful force in our world, and when it comes to retirement savings, 401(k) account consolidation is inherently efficient and exerts a protective effect on retirement savings as participants change jobs. Writing in RCH’s Consolidation Corner blog, Tom Hawkins offers readers six key facts about retirement savings consolidation, providing ample evidence on the efficacy of consolidation in improving participants’ retirement outcomes.
A More-Enlightened Approach to Uncashed Distribution Checks
No retirement plan sponsor likes the idea of dealing with uncashed distribution checks, nor do they wish to draw unwanted regulatory attention or to become embroiled in costly litigation. Unfortunately, many plan sponsors place themselves in precisely that spot, becoming unnecessarily over-burdened with unresolved uncashed checks, while inviting unwanted regulatory scrutiny and/or legal challenges by having flawed uncashed check policies. In his 2/8/24 article in RCH's Consolidation Corner blog, Tom Hawkins lays out a "more-enlightened" approach to the problem of uncashed distribution checks, seeking to minimize their numbers, while simultaneously steering clear of the “red flags” that could land them in hot water.
A Perfect Storm is Brewing—But Automated Portability Could Defuse It
RCH and PSN President & CEO Spencer Williams, writing in the Consolidation Corner blog, notes that a rising incidence of hardship withdrawals and 401(k) loans – as reported by Bank of America – combined with a pending increase in the account-balance limit for automatic rollovers effective 12/31/23, could create a “perfect storm” for depleting Americans’ retirement savings. “Fortunately,” writes Williams, “sponsors and recordkeepers have access to a solution that can help them clean up their plans without automatically rolling terminated accounts into safe-harbor IRAs.” Auto portability, continues Williams, is a “capability [that] is more essential than ever, with 401(k) plan enrollment continuing to increase” and could serve to defuse the brewing storm of potential cash-outs.
The Future is Brighter for Small-Balance Retirement Accounts
RCH's Tom Hawkins, writing in the Consolidation Corner blog, describes the "brighter future" emerging for small-balance retirement savings accounts. Hawkins maintains that these accounts, which he associates with an increased incidence of sub-optimal participant outcomes, will fare much better in the future due to "large-scale, industry-led action on auto portability, and more recently, proactive steps being taken by leading providers to consolidate legacy small-balance IRAs."
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