Regulators need to put record keepers in their cross hairs

Brokers and investment advisers aren't the only ones
who should take the heat for rollover activity

Apr 20, 2014 @ 12:01 am

Ever since the Government Accountability Office issued a report a year ago which found that employees moving from one company to another were being unduly influenced to roll their 401(k) funds into individual retirement accounts, regulators have been turning up the heat on brokers and investment advisers on rollover activity. Well, maybe it's time they put 401(k) record keepers in their cross hairs as well.

As InvestmentNews' Darla Mercado reported last week, some record keepers seem to be creating mountains of red tape when employees try to move their 401(k) fund into a new employer's plan.


In many cases, these record keepers have an inherent financial interest in convincing employees that they would be better off leaving the funds where they are or rolling the money into an IRA managed by the record keepers themselves.

As one retirement adviser noted: "The paperwork is fairly convoluted. [Providers] hope that people will throw their hands up in frustration and leave their money there."

The problem is, in some cases, the employee would be better off rolling his or her 401(k) funds into a new employer's plan, where the investment options might be better than in the old plan. Or the employee might find that a company other than the record keeper is a better choice to handle the IRA rollover.


What employees need is honest, straightforward advice — someone to explain in plain English all of their options and how they should go about researching each one. That is, in fact, what the record keepers are supposed to be doing.

But if record keepers are not doing their job, retirement plan advisers are going to have to step in to see that it gets done. If that means running interference between the employee and the record keeper, so be it.

Meanwhile, the Labor Department should make sure that record keepers are educating their own workers, many of whom work in call centers, as to their obligation to provide impartial, objective advice and make sure they are not creating unnecessary roadblocks that ultimately favor the record keeper's own ends.


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