There are tens of thousands of workers who are due lost 401(k) money, but there is no one central depository where you can look for what's rightfully yours. Thankfully, the Pension Benefit Guaranty Corp. is finally getting around to asking how it can help—only seven years after Congress instructed it to do so as part of the Pension Protection Act of 2006.
"People across the spectrum realize there's a problem: obviously it's a problem for participants because they aren't getting their benefits; it's also a problem for employers because they don't know what to do with the unclaimed money," says Ellen Bruce, director of the Pension Action Center at the University of Massachusetts Boston. "This is a good step towards trying to come to a resolution that will have a higher chance of getting the money to the people who earned it," she adds.
Congress' idea was to allow terminating 401(k) plans to transfer money due missing participants to the PBGC for safekeeping, and the PBGC would set up a database of missing participants—much like the existing PBGC program that has matched missing participants with lost terminated defined benefit pensions.
"There's a logic to having one agency be the place where plan participants would go to try to determine if they have any lost retirement assets," says David Abbey, senior counsel at the Investment Company Institute, which submitted comments in response to the PBGC's request for information on Missing Participants In Individual Account Plans. "We think it's a crucial program, and we really want the PBGC to follow through," he adds.
What happens to lost 401(k) money now? An employer might put it in an Individual Retirement Account to be eaten up in fees, or it might escheat to the state.
There's real money at stake. The Investment Company Institute surveyed its members and those that responded reported lost 401(k) account balances ranging from $2 to $72,304. The average of the highest account balance numbers provided by the members who provided data was $42,380.
How can you lose that much money? Employees forget about the plan (so many jobs, so many accounts to keep track of) or can't find the plan (thanks to corporate mergers and restructuring), and the plan can't find the employee (people move).
The Department of Labor has detailed rules on what employers are supposed to do to track down missing participants, and its ERISA Advisory Council is examining how to best connect lost participants with their benefits (details here). At hearings in June, Bruce of the Pension Action Center gave the example of a man who received a notice that his 401(k) was being terminated and assumed that an Individual Retirement Account was being set up for him. None was, but when the Pension Action Center tracked down the lawyer who handled the plan termination they were able to get his money out. Bruce's testimony is available here.
So why not do even more? Make the PBGC database more comprehensive to include missing participants with unclaimed benefits in both terminated and active plans. That was what folks were pushing for before the Pension Protection Act, says Edward Ferrigno, vice president, Washington affairs, for the Plan Sponsor Council of America. In a joint comment letter with the U.S. Chamber of Commerce and the ERISA Industry Committee, PSCA simply encourages the PBGC to move forward with implementing the missing participants program for terminated plans.
Best Heal Care Companies To Invest In Right Now
Should the program apply to terminated plans only? Should it be voluntary or mandatory? Some issues are more contentious than others, notes Mary Ellen Signorille, a senior attorney with AARP who helped write comments too. "Our bottom line is: we just want it to work so people can get their money! Even a small account balance could be the difference between being comfortable or not in retirement," she says. A comprehensive database could also help heirs of deceased participants searching for lost money.
The next step for the PBGC is to propose a rule and solicit comments again.
In the meantime, employees should be paying attention, Ferrigno says. If you join a new plan, you should see if your new employer will accept a rollover of the money built up in the old plan into the new plan. If it doesn't (or if the new plan is a clunker with poor investment choices or high expenses), you should consider rolling the old plan money into an Individual Retirement Account. If you have a handful of former 401(k) accounts, consolidate them.
Find an unclaimed defined benefit pension here. The PBGC says there are more than 38,000 people who haven't claimed pension benefits they are owed to a tune of over $300 million total (one lost pension is worth almost $1 million!). For free help finding a lost pension, check out this list of pension counseling projects.
See also:
The 20 New Rules Of Money
No comments:
Post a Comment