small-balance 401(k) accounts

Key causes of small accounts

• Mobile workforce: The propensity of the American 401(k)participant to frequently change jobs – currently estimated tooccur almost 10 times in an average career.
• Business growth: Growth, whether by diversification, byacquisition or simply organic growth will increase the base numberof participants, and tend to increase the incidence of smallaccounts.
• Employee turnover: Certain industries traditionallyexperience high levels of employee turnover (ex. – retail, healthcare, food service). This turnover directly drives higherpercentages of separated participants in plan, many of whom willleave small balances behind.
• Auto-enrollment: Plans that utilize an auto-enrollment feature will enjoy higherparticipation levels, but will likely alsoexperience unintended consequences in the form of a largenumber of small-balance accounts.

Problems posed by small accounts

1. Reducedretirement readiness metrics2. Higher plancosts

• Lower average balances = higher record keeping fees

3. Administrative burdens

• Locating missing participants
• Resolving uncashed checks
• Handling returned mail

4. Increased fiduciary risk

• Missed mailings (statements, SPDs, etc.)
• Unnecessary & excessively high participant cashouts (up to60% for participants with less than $5,000)
• Risk of DOL or IRS audits with respect to missing participants,particularly those who are due benefits

Consolidating balances

1. An automatic rollover (ARO) program tohandle mandatory distributions for separated participantswith less than $5,000.2. A facilitated roll-in program for existing planparticipants (all balances).3. A roll-outprogram for separated participants with greater than$5,000.1. Address location services formissing participants.2. Uncashed checkservices.Retirement Clearinghousesite