Can we persuade ex-employees to roll out their retirement plan balances?

You sure can.

If a plan sponsor decides it is in the plan’s best interest for ex-employees to roll their retirement plan balances out, they can implement some practices to support this goal.

First, the IRS provides a safe harbor solution for plans to roll out small balances automatically. Plans have the right under this safe harbor to provide 30 days’ notice to ex-employees who have a balance under $5000. After this notice expires, if the participant hasn’t rolled their balance out voluntarily, the plan sponsor can authorize these assets to be automatically moved to an IRA in the participant’s name. Plans that utilize this safe harbor typically remove many small and forgotten balances ex-participants leave in their retirement plans.

For balances over $5000, plan sponsors can’t automatically roll out the assets, but they can persuade employees to move these funds. Ideally, you should start this process when the employee leaves the company. The plan sponsor should provide the participant with all the needed information regarding removing their assets from the plan during the exit interview with the departing employee. Addressing these assets at that time improves the likelihood that these assets will be transferred.

For ex-employees who decide to wait to remove their funds, regular company communications recommend the funds transfer to help keep these assets in mind. Additionally, by sending these reminders, the plan maintains communication with the ex-employee, limiting the risk that the employee will change their contact information and become a missing participant.

Finally, the sponsor can retain a financial advisor who can actively reach out to the ex-employee and offer them a solution for moving their funds out of the plan. This strategy provides ex-participants with an option if they don’t have a relationship with an advisor.

Overall, if the plan sponsor’s process includes the IRS safe harbor option, along with regular reminders, they should be able to limit the number of accounts owned by ex-employees.

Contact us if you’re interested in learning how Plan Notice can support you in persuading ex-employees to roll out their assets. Plan Notice can help you implement the IRS safe harbor solution for automatic small balance rollout and also provides a process for reminder communications you can send out to ex-participants with balances that don’t qualify for automatic rollout. In addition, plan Notice diligently documents all communications to keep you in compliance with ex-employee communication requirements.

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