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Missing Participants and Patriot Act


J. Bringhurst

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Ashley L:

The problem with the new rules is that they may actually promote inertia. From purely a fee standpoint, a participant may feel that he is as good/better off with a safe harbor IRA (where the fees can't be higher than ANY comparable IRAs, I believe) than doing his own rollover. He might not be considering the benefit of actively managing the IRA assets, etc. But eventually he is very likely to be separated from the IRA (the financial institution is merged, the participant moves, etc.) He won't even know what state's escheat rolls to look at. He will lose the entire 1000 to 5000.

If you eliminate the 1000 to 5000 cashouts, then you encourage action as opposed to inertia. The fee benefit goes away. Based on the recent guidance from DOL (summer 2003) and IRS (early 2004), terminated participants can be charged for their share of plan expenses. That charge would likely be higher than the safe harbor IRA (no dollar limits on the plan fee provided it is reasonable, etc.) The participant will be motivated to take ownership of his account and to consider both the fees and the investments. And where appropriate, he will presumably roll to an IRA with a financial institution in his state and provide the necessary signatures, etc. It is less likely to get lost. He'll end up with the retirement funds.

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Does anyone know if there exists some sort of a state by state survey of whether state law allows an IRA to be set up without a signature? Let's say hypothetically that New York won't allow it. Doesn't matter what the DOL regs say, the plan administrator cannot comply. So the only choice available would be to amend plan to NOT require mandatory cashouts of 1,000 - 5,000.

I don't know if any or all states have such restrictions. If none do, does anyone know of a nationwide IRS provider or providers that will be willing to accept this business in all states?

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