Working with small retirement plan sponsors is tricky. The dirty little secret in the industry is that small plan sponsors are probably harder to work with and present more potential pitfalls than their larger plan counterparts. One area we see a lot of plan sponsors struggle with is former participants. What if you only have 80 employees but your plan is creeping towards large plan filer status?
This can create a significant cost to small plan sponsors who then have to perform an annual audit. Those aren’t cheap and in many cases the only reason the plan sponsor is anywhere close to the head count requiring an audit is because of former employees who have left their money behind.
Many plan sponsors will take the necessary steps to move assets to auto-IRA’s for those under 5K in assets or cash out those participants under 1K. But what about those who have 20K, 50K or 100K and haven’t been at your firm for a long time? If the plan sponsor is paying the recording, administration and/or advisory fees for participants, there is a way to offload those expenses onto to those former participants. For the better part of a decade, Revenue Ruling 2004-10 states that plan sponsors can have fees swept from plan assets of former employees.
If the plan sponsor’s vendor has the capability to do this (most do), you can combine this with a communication campaign to those former participants to provide them the push they need to take action. In many cases that former employee was probably waiting until they were eligible for their new employer plan and simply forgot. In other cases participants may have been overwhelmed by the IRA choices available to them. By taking this action and communicating it to those former participants we have seen plan sponsors able to reduce former accounts significantly and in many cases maintain small plan filer status. #401 #403b #QPRetirement #fiduciary