Rollovers solve the dilemma of managing retirement accounts

Many former employees are ‘missing’ or ‘non-responsive’ to queries about their retirement accounts.

By Terry Dunne

As their budgets grow tighter, church human resource and employee benefits directors and financial oversight committees are realizing that maintaining retirement savings benefits for ex-employees is becoming costly. This includes plans for people who once worked at individual churches or national headquarters as well as those employed by hospitals, schools and similar organizations operated by a church.

Of course, not all ex-employees leave their retirement funds with the church’s retirement plan. Some elect to receive these funds directly, roll the balances over into IRAs or transfer them to another employer’s retirement plan.

Unfortunately, there is always a large group of people who do none of the above. Rather they leave their retirement funds with the churches’ plans and provide no instructions about what to do with their retirement funds. Some of them move or otherwise disappear, making it impossible for the church to contact them about this matter. They fall into the “missing” category.

Many never respond
Others haven’t disappeared at all but simply never respond to queries from the church about their retirement accounts. They are identified as “non-responsive.” Almost all churches have hundreds or maybe thousands of people in these two categories. Every year that passes sees an increase in the numbers, boosting the cost to churches of managing their retirement plans and driving down potentially critical pricing metrics such as average account balances.

How significant is this problem?  It probably mirrors that of the corporate world. A Charles Schwab survey conducted in the spring of 2009 noted that 43 percent of the 401(k) assets belonging to participants who were terminated from their jobs one year earlier were still sitting in their former employers’ plans.

Administrative cost and time are only two issues that concern churches. Another is their plans’ fiduciary responsibilities, even for ex-employees which can have legal and financial ramifications. Court cases like LaRue v. DeWolff (Supreme Court, 2008) established the right for plan participants to sue plan sponsors if they feel their retirement account has been mismanaged.

Churches should conduct due diligence searches, attempt to communicate all required information, be certain that a valid investment election is always in effect, and manage appropriate death benefit distributions to beneficiaries. Failure to do so can lead to fines, penalties and/or law suits.

Though they recognize these ex-workers are contributing to the cost and time required to manage church finances, most churches truly would like to see these people reunited with their retirement funds and have the opportunity to increase their value. In recent years, some national and regional religious organizations have discovered that companies specializing in providing automatic IRA rollover services can help them achieve this goal.

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Rollover created
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) created the automatic rollover IRA. The act allows churches to cash out participants with balances less than $1,000 and rollover the retirement funds from missing and non-responsive participants with assets of $5,000 or less to a custodial that will create and administer an IRA in each former employee’s name. These firms will also undertake an extensive effort to locate missing participants and establish communications with non-responsive individuals.

Utilizing the automatic rollover process relieves the church of the risk, cost and responsibility of maintaining these balance accounts. It can also be beneficial to the former employee as the IRA custodian typically offers a wider array of investment options than the church’s plan. Some firms also offer investment options that meet the social responsibility investment guidelines which the church’s retirement plan might have followed.

There are numerous ways to identify candidates to provide rollover services. Organizations such as ASPPA (American Society of Pension Professionals & Actuaries), IFEBP (International Foundation of Employee Benefits Plans), NIPA (National Institute of Pension Administrators) or the PSCA (Profit Sharing/401(k) Council of America) are among those that can provide guidance.

Where to find firms
Internet searches will also identify automatic rollover firms whose websites present their capabilities. Articles in trade magazines and professional journals cover this topic and often mention companies in the field.

Not every IRA custodian offers automatic rollover services. Those who do provide the services in many different ways. There are several key guidelines that can be followed to evaluate a potential automatic rollover custodian.

  1. Does the firm have a minimum sized account it will accept?  Some firms will only accept rollover accounts of $1,000 or more.
  2. How many accounts will the custodian accept? Not all firms have the capability to efficiently open and administer a large number of accounts at one time and then began searching for missing participants.
  3. What is the search process for missing participants? Does the firm have  relationships with search organizations that specialize in sophisticated searches?
  4. Does the custodian offer rollovers from Roth 401(k) plans into Roth IRAs or allow for conversions from IRAs to Roth IRAs?  The IRS allows IRA account holders to convert their traditional pre-tax IRA balances into after tax Roth IRAs so their investments can grow tax-free until  distribution.
  5. What technology does the firm use to transfer participant information and their balances? This should be accomplished quickly, accurately, seamlessly and securely with minimal implementation requirements.
  6. How many years has the custodian been providing automatic rollover services? How many automatic rollover clients does it have and how many rollovers has it implemented?

Like every other major employer, churches are watching expenses closely and seeking out opportunities to reduce costs. Those with large inventories of missing or non-responsive ex-employees in their retirement plan may well want to investigate the cost saving potential of automatic rollovers.

Terry Dunne is senior vice president for Automatic Rollovers at Millennium Trust Company LLC, in Oak Brook, IL. 
www.mtrustcompany.com

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