Forgotten Retirement Benefits: A Unique Challenge
Would someone really just forget about large sums of money they had accumulated and set aside for years? As every plan administrator knows, the answer is yes. A recent blog post discusses the effects of such financial amnesia.
In “The Challenges of Forgotten Retirement Benefits
,” Mary Pittman notes that leaving retirement funds behind has a broader effect than one may imagine at first blush. “Forgotten retirement benefits pose unique challenges for employees, former employers and plan administrators,” she notes.
Pittman contends that it’s a detail that simply falls through the cracks when an employee changes jobs. “With all the other changes that occur when switching employers, their retirement plans can easily get lost in the shuffle — especially when the employee has a small balance in their account,” she says.
It’s obvious that this costs employees. For one thing, she notes, some employers may order a forgotten account to be cashed out and a check sent to the employee — which will entail not only taxes being withheld but also could result in early withdrawal penalties. And if the employee in such a scenario moved without providing an updated address, he or she may never get even that check at all.
But forgotten benefits also cost employers, Pittman says — by adding to their plan costs and putting them at risk of violating their fiduciary duty by mishandling those funds. Plan administrators also are not immune, she observes, since they “can get bogged down in searching for former employees, dealing with uncashed checks, and administering accounts they often aren’t sure what to do with.”
Pittman offers some suggestions for ways to head off such unfortunate circumstances. Employers can take a number of steps, such as asking new employees if they left behind an account; having employees verify their address and contact information regularly; asking for an annual inventory of uncashed checks; and searching for missing participants.