IRA Automatic Rollover

[Gruegen]

Although the DOL has not finalized the automatic rollover regulations, I was wondering how recordkeepers are planning to administer these rules. For example, if the qualified plan is being recordkept by a large financial services company (ie - Fidelity, Vanguard, T Rowe, Putnam), will the participant's cash out be moved to an IRA with that financial institution?

What about those recordkeepers that are not financial institutions (ie - Hewitt, TPA's, etc) - - who will be the IRA recipient for cash out from those plans?

Thanks.

[FundeK]

I think we are all in denial that it will actually happen.

Who would want to accept these rollovers?? The fees to be charged must not exceed the earnings on the account. The funds have to be invested in something conservative to keep the principal intact. What kind of fee will you be able to collect on a $1,000 - $5,000 balance sitting in a money market fund?

[mbozek]

Why would the plan want to give up the funds when it can charge former participants the admin costs of maintaining the funds in the plan. Maintaining a larger asset base can lower fees paid by the plan. The plan can be amended to limit involuntary cashouts to accounts not in excess of $1000 so as to avoid the automatic rollover requirement.

[sloble@crowleyfleck.com]

I like mbozek's idea of avoiding the issue by amending the plan to limit cash-outs to accounts with $1,000 or less. Other than the administrative hassle of keeping small accounts of $1,000 to $5,000 in the plan, does anyone see any down-sides to this approach?

[Kirk Maldonado]

The inability to locate long-gone participants if you should ever decide to terminate the plan (e.g., if the company is acquired)?

[mbozek]

The benefits of a missing particpant can be forfeited if they cant be located after termination subject to reinstatement if the participant turns up later which is almost never. See reg. 1.411(a)-4(b)(6). You dont have to wait until terminaton of the plan. Anyway the sucessor would be obligated to restore the benefits if the missing participant ever appears .