If an ex-employee has a new plan option, do they have to roll their assets into it?

Nope. 

No rules are in place to support a plan sponsor requiring any ex-employee to remove their assets from a retirement plan, even if the said employee has an alternative option. ERISA was developed to protect the individual participants and to require sponsors to run a responsible plan, whether it benefits an active or an ex-employee. To the Department of Labor (DOL), a plan participant is a plan participant, meaning their employment status is irrelevant. 

However, many plan sponsors decide that ex-employee balances should not remain in their plan, so they’ve remind them of the benefits of moving their assets by sending them regular notices asking them to consider doing so. These notices emphasize the benefits of changing plans. Examples of these benefits are:

1. The ability to consolidate retirement assets. Individuals who have multiple retirement plans to manage struggle to develop comprehensive portfolios and risk losing one of their accounts. 
2. Moving money from a retirement plan to another tax-qualified solution could increase the portfolio options in which an individual can invest. Individual retirement accounts (IRAs) allow a variety of investments, which a company-sponsored retirement program may not offer. 
3. Lesser fees related to an individual portfolio. When invested in a retirement plan, the individual supports the fees associated with the entire group, whereas in an individual retirement account, any fees are based solely on the individual’s assets.

Plan sponsors who remind ex-employees of these benefits increase the likelihood that the individuals will transfer their balances. Additionally, some plan sponsors work with a financial advisor who actively reaches out to these ex-employees to explain the advantages of moving their assets to either their current employer’s company retirement plan or an IRA.

Because you can’t require participants to move their assets, a consistent strategy to persuade them can help you accomplish this goal (if that’s what you decide to do).

Plan Notice offers plan sponsors a solution for the notifications required for both active and ex-employees. Our team can support you in developing a consistent process to remind ex-employees of their options related to removing their assets from your plan. Additionally, Plan Notice tracks the receipt of these notices and provides proof of delivery, which is beneficial for plan compliance and allows you to pursue ex-employees who have been non-responsive regarding transferring their assets.

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