The U.S. Government Accountability Office (GAO) recently released a report indicating the complexity of 401(k) plans is pushing employees to move money from their 401(k) plan into an individual retirement account (IRA).
The GOA's report, "401(k) Plans: Labor and IRS Could Improve the Rollover Process for Participants," showed the deficiencies in 401(k) plans, highlighting the current 401(k) rollover system as complex, confusing and possessing a lack consistency. This might not be the best option, however, as the GAO and Aon Hewitt, a global leader in human resource solutions, believe employers should educate the current work force on the best avenues of a 401(k) plan.
"The GAO's report brings to light very real problems with the current rollover system," said Alison Borland, vice president of retirement solutions and strategies at Aon Hewitt. "Keeping retirement dollars in the employer-provided system is paramount to helping workers ensure that they are adequately prepared for retirement, and we have long been concerned about the difficult process workers face when trying to roll one employer 401(k) plan into another. Aon Hewitt believes the GAO recommendations for improving the rollover process would go a long way to ensure that workers' best-interest and financial security is a top priority for employers and plan providers."
These findings by the GAO come as a recommendation for companies to helpworkers reach their retirement saving goals by minimizing the confusion associated with 401(k) rollover systems. Companies should encourage employees to keep retirement money in employee-provided retirement systems.
An abundance of workers aren't grasping the advantages of keeping retirement savings in the employer-provided system. This stems from workers not being properly educated about their different options.
Workers choosing to roll retirement dollars into an IRA risk losing substantial features, which can help long-term retirement goals, within the employer-provided system.
These features include:
1. Access to resources. Employers will offer workers online advice, modeling tools and lifetime income solutions from experienced representatives. These types of resources are often seen at much higher rates compared to what's offered by employers.
2. The power of purchasing. Employers offer a larger defined contribution plan because of the magnitude of its employees. A larger number of participants enhance the purchasing power, allowing an employer to offer an investment product at a much lower cost to its employees compared with an individual IRA.