The Rollover Obsession

By John Iekel • July 24, 2014 • 0 Comments
Is Washington obsessed with rollovers? ASPPA Executive Director and CEO Brian Graff thinks so. “There’s no one who doesn’t care about this issue. There is an obsession with the rollover issue in D.C.,” said Graff in the July 22 webinar, “Washington Update: Rollovers, Rollovers, Rollovers — it’s All About Rollovers.” He and ASPPA Director of Government Affairs Ron Triche discussed the ways in which rollovers are front-and-center on the federal radar screen. 

“We’ve been asked to talk to a large number of Securities and Exchange Commission and Government Accountability Office staff and numerous folks on the Hill and at the Department of Labor,” Said Graff. Triche added that the media is also paying attention. 

This is no accident. Graff and Triche pointed out that almost as many 401(k) plan participants who changed employers rolled their 401(k) balances into an IRA as left their funds in the former employer’s plan. And this involves a lot of money; almost half — 47% — of those rollovers involve 401(k) account balances of more than $100,000. They said that the larger the 401(k) balance is, the more likely it is that it will be rolled into an IRA. And rollovers happen across all wage bases, but they are most prevalent among employees who earn more than $75,000.

Triche said that the Government Accountability Office (GAO) determined that current procedures encourage rollovers. “Rollovers between plans is complicated; rollovers to IRAs are easier,” he remarked. So it should come as no surprise that the assets held in IRAs have grown. In 2013, that amounted to $6.5 trillion — more than is held in 401(k)s. 

The result? “They clearly are engaging the attention of regulators,” said Triche. Graff called some of the federal scrutiny “fishing expeditions” and said they are often due to requests by politicians such as former Ways and Means Chairman Rep. George Miller (D-Calif.). “Often requests for GAO studies come from those with an agenda,” he said. 

FINRA is another agency that Graff says is “obsessed with rollovers.” He adds that FINRA shows a bias toward people keeping their money in a former employer’s plan rather than rolling it into another. Triche agreed, but suggested that bias may be for naught. “Sometimes people insist that their money not be with a former employer, no matter what the government thinks best,” he said. 

Not only that, IRAs may not escape the impending federal regulations on the definition of fiduciary, which now are promised for January 2015. DOL Assistant Secretary of Labor Phyillis Borzi has hinted as much when she commented that workers contemplating investing through an IRA should be able to trust their advisors and rely on the impartiality of their investment advice. Triche said “we are concerned that the definition could have an impact on IRAs. Right now, rollovers are not a fiduciary act; they could be under ERISA” after the definition is issued. 

Advisors and broker dealers would do well to tread carefully, Graff cautioned. “The government’s following the money. We were surprised with how aggressive they were.” And he reiterated the importance of openness and providing full information. “They’re very focused on disclosure,” he said of federal regulators. “The bottom line — you need to be transparent with your clients,” said Graff. “Rollovers are definitely on everybody’s minds and in front of everybody’s eyes,” noted Triche.