Never leave a 401(k) behind
I am often amazed at the number of people that leave retirement plans behind when they change employers. Why would anyone take a chance on losing track of their hard earned money? Are they just irresponsible? Lazy? From the companies perspective, why would anyone want to continue to pay administrative costs for people who are no longer employed?
I think I have found the answer: No one can navigate the red tape involved.
Recently, I reached out to a former employee at a company I work for and asked him if he needed help moving his old 401(k) with us to his own IRA account. He did need help so I told him I would send the needed forms and call him back. Here is what I found:
The form was one page long with another eight pages of disclosures and fine print. References were made to vested balances, rollover amounts, traditional IRA’s, Roth IRA’s, withholding elections, periodic verses non-periodic distributions, 60-day deadlines and lump sum payments to mention just a few.
After looking over the form I concluded that most people would figure that it was safer to just leave the account alone rather than take a chance on trying to move the money and make a mistake in the process.
Here is how to fix the problem:
- Make sure you have up-to-date contact information (to include personal email, home phone number and home address) of all 401(k) participants. If someone is fired the Advisor can proactively reach out and offer assistance on moving the 401(k) savings.
- While an employee is still working for you, encourage them to open their own Individual Retirement Accounts (IRA’s) at an institution of their choice. Most people change jobs 5 times before they retire so we need to educate them on the wisdom of having an IRA.
- Give terminated employees the needed distribution form, reminders on how to log on to the 401(k) website and phone numbers to call for help moving the 401(k), as part of their termination papers.
Leaving a retirement plan behind is costly for both the employee and the business owner.
How many old employees are still in your retirement plan?