A roll-in and the DOL Fiduciary Reg

Rollovers are all the rage.  After all, when you get invited to that steak dinner or wine tasting hosted by a financial advisor, typically the way they get paid is when you give them money to manage (not always mind you).  So if the DOL fiduciary regulation is upheld and not watered down, what extra steps might it involve?  In theory, they may have to look at your situation and tell you that you are better off not working with them.

For one, your advisor is now going to have to gather some additional information on your retirement plan to provide a benchmark or comparison of the fees & services you will receiving in your IRA relative to those in the plan.  What we are seeing is a lot of plan sponsors with plans that have high average account balances picking up the tab for both recordkeeping and advisory services.  What this means is as a participant inside the plan (ex. 401K, 457b, etc), you might be paying investment related expenses that are between .05% to .30%.  No, you didn’t read that wrong.  Despite the reporting to the contrary, if your retirement plan is managed correctly and your employer picks up the tab on most of the fees, you will be hard pressed to find a better deal in an IRA outside of the plan.  Suddenly you don’t have the buying power of your fellow colleagues when you do a rollover.

Even if your employer doesn’t pick up the tab, you could have costs that range from .45% to .70%.  This all depends on your plan, its size, vendors utilized, etc.  All of this focuses on fees.  So what other triggering factors could make you want to leave your money in the plan or even roll money into the plan?

What we are seeing is a number of employees staying in the workforce well after the normal retirement date of the plan.  If I am 72 and working, I don’t have to take a required minimum distribution (RMD) from 401K assets.  So I might even look to roll my assets that are in IRA’s that are eligible into my employer plan to prevent me from having to take an RMD.  Even if I am still working, I still have to take an RMD from my IRA assets.  This could be a perfectly good reason to roll money in even though my advisor isn’t going to like it because he or she now likely isn’t getting paid on those assets.

If you are a 5% or more owner of your firm, this exemption to the RMD doesn’t apply.  So what happens when that same owner becomes a former owner as they sell their business but stay on in a full time position?  You are once again looking at the roll-in as a viable option.  As you can see, blanket recommendations will likely leave you still feeling cold.  Every situation is different but with workers staying active and healthy well into their 70’s, and with RMD age restrictions not having moved to keep pace, the roll-in could start to be a really good option.