Benchmarking 401(k) rollover behavior

Participants in retirement plans in the U.S. receive generous tax incentives from the federal government to encourage saving for retirement. As taxpayers, both employers and individuals have a vested interest in ensuring these dollars are used for their intended purpose—and not to pay inflated fees for services.

Rolling retirement assets out of employersponsored plans and into individual retirement accounts (IRAs) can place hardsaved dollars at risk, which has resulted in the increased scrutiny of rollover practices.

The attention on rollovers has, in part, been fueled by the Department of Labor’s fiduciary regulation that underscores the importance of providing trusted and unbiased guidance to individuals when they are making the key decision about what do to with the savings in their company’s retirement plan. Additionally, a 2013 report from the Government Accountability Office1 (GAO) condemned practices that appear to steer individuals to roll over their 401(k) balances to IRAs.

In light of this increased attention, sponsors of large retirement plans are asking some fundamental questions:

1. Should plan sponsors monitor the IRA rollovers from their plans? Why or why not?
2. What are “good” reasons for people to roll 401(k) balances into IRAs?
3. How can plan sponsors know if their participants are subject to undue influence or steerage with respect to rollover decisions?
4. Who is responsible for assessing rollover behavior?