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

Consolidating balances

1. An automatic rollover (ARO) program to handle mandatory distributions for separated participants with less than $5,000. 2. A facilitated roll-in program for existing plan participants (all balances). 3. A roll-out program for separated participants with greater than $5,000. 1. Address location services for missing participants. 2. Uncashed check services. Retirement Clearinghouse site

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