Millennium Trust Blog

Retirement Risk Remains a National Issue

September 14, 2018
By Terry Dunne
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Automatic rollover IRAs help improve retirement readiness by connecting participants with their hard-earned assets. We recently wrote a whitepaper detailing the history of automatic rollovers, current trends, and their future outlook. This post touches on how safe harbor IRAs help accountholders, and is the third in a series of five sneak peaks from the new white paper, Automatic Rollover IRAs: From Legislative Footnote to Fiduciary Best Practice.

Sometimes, retirement security seems as precarious as an aerialist’s high-wire walk between skyscrapers. Unexpected gusts, in the form of financial and economic crises, unemployment, market volatility, and regulatory, tax, and reporting changes, assail the delicate balance of workplace retirement plans. Sometimes those gusts blow so strongly that retirement security appears ready to topple.

In 1983, the National Retirement Risk Index (NRRI) reported that just about one-third of American households “will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65 and annuitize all their financial assets, including the receipts from a reverse mortgage on their homes.”

By 2010, the proportion of at-risk households had risen to 53%. Since then, retirement security has strengthened modestly, largely owing to economic recovery, strong market performance, and innovative plan features. Automatic enrollment and automatic escalation have become plan design best practices, as have automatic rollover IRAs (a.k.a. Safe Harbor IRAs), which help plan sponsors address an unanticipated side effect of automatic enrollment – a surfeit of abandoned plan accounts.

When participants change employers, they don’t always take their savings with them.

In recent years, the number of accounts left behind by plan participants has increased significantly. The Government Accountability Office (GAO) estimated that between 2005 and 2015, 25 million participants in workplace retirement plans left a qualified plan account behind with a former employer, and millions more left more than one account behind.

The glut of abandoned retirement accounts created some significant issues for plan sponsors, ranging from increasing participant counts to increasing plan costs to possible fiduciary liability.

Subscribe to our blog or check back next week for the fourth post in this series.

Download Whitepaper

The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.

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