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 to occur almost 10 times in an average career.
• Business growth: Growth, whether by diversification, by acquisition or simply organic growth will increase the base number of participants, and tend to increase the incidence of small accounts.
• Employee turnover: Certain industries traditionally experience high levels of employee turnover (ex. – retail, health care, food service). This turnover directly drives higher percentages of separated participants in plan, many of whom will leave small balances behind.
• Auto-enrollment: Plans that utilize an auto-enrollment feature will enjoy higher participation levels, but will likely also experience unintended consequences in the form of a large number of small-balance accounts.

Problems posed by small accounts

1. Reduced retirement readiness metrics 2. Higher plan costs

• 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 to 60% for participants with less than $5,000)
• Risk of DOL or IRS audits with respect to missing participants, particularly those who are due benefits