401k Plan Small Balance Automatic Rollover

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Tamer Wurf
Posts: 12
Joined: Tue May 29, 2018 5:19 pm

401k Plan Small Balance Automatic Rollover

Post by Tamer Wurf »

Hi all,

I own a small business, and I just moved my 401k plan over to Vanguard (managed by Ascensus). When a participant's balance is <$5,000 upon termination, it automatically gets rolled over to an IRA if the employee takes no action. Vanguard's offering for this directs them into an Ascensus trust account, and defaults them into a money market fund drawing 0.01% interest with a $35/year annual fee. This isn't particularly desirable, and unfortunately a majority of participants just let it sit in this account.

It is possible to designate another company to accept these force-out IRA rollovers, but I have not found a company that actually does this. Does anyone else have any experience with this? Do any other providers out there default them into something that isn't a money market fund? Even if they don't work for me anymore, I do want them to have a better retirement outcome.
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: 401k Plan Small Balance Automatic Rollover

Post by pkcrafter »

Tamer Wurf wrote: Fri Oct 22, 2021 10:30 am Hi all,

I own a small business, and I just moved my 401k plan over to Vanguard (managed by Ascensus). When a participant's balance is <$5,000 upon termination, it automatically gets rolled over to an IRA if the employee takes no action. Vanguard's offering for this directs them into an Ascensus trust account, and defaults them into a money market fund drawing 0.01% interest with a $35/year annual fee. This isn't particularly desirable, and unfortunately a majority of participants just let it sit in this account.

It is possible to designate another company to accept these force-out IRA rollovers, but I have not found a company that actually does this. Does anyone else have any experience with this? Do any other providers out there default them into something that isn't a money market fund? Even if they don't work for me anymore, I do want them to have a better retirement outcome.
I can't offer much help, but I would think that once the 401k is rolled over to an IRA, the owner can choose his/her investing options. It should also be possible to transfer the IRA somewhere else. Here is some information on Vanguard an Ascensus' relationship.

https://duckduckgo.com/?q=moved+ascensu ... 3-1&ia=web

https://duckduckgo.com/?q=ascensus+trus ... 3-1&ia=web

For more information, you might have to contact Vanguard or Ascensus.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Mike83
Posts: 161
Joined: Tue Apr 01, 2014 1:37 pm

Re: 401k Plan Small Balance Automatic Rollover

Post by Mike83 »

We use Acensus and they do not do that for us, so it's likely in the plan setup. It's also likely to be an option they can change. We have many ex employees who we have lost contact with in these small accounts, and every year we (voluntarily) message them, best we can, about the possibility of moving the funds.
exodusNH
Posts: 10347
Joined: Wed Jan 06, 2021 7:21 pm

Re: 401k Plan Small Balance Automatic Rollover

Post by exodusNH »

Tamer Wurf wrote: Fri Oct 22, 2021 10:30 am Hi all,

I own a small business, and I just moved my 401k plan over to Vanguard (managed by Ascensus). When a participant's balance is <$5,000 upon termination, it automatically gets rolled over to an IRA if the employee takes no action. Vanguard's offering for this directs them into an Ascensus trust account, and defaults them into a money market fund drawing 0.01% interest with a $35/year annual fee. This isn't particularly desirable, and unfortunately a majority of participants just let it sit in this account.

It is possible to designate another company to accept these force-out IRA rollovers, but I have not found a company that actually does this. Does anyone else have any experience with this? Do any other providers out there default them into something that isn't a money market fund? Even if they don't work for me anymore, I do want them to have a better retirement outcome.
Ask them if you can change your plan to stop forcing those small balances out. Forcing out the small balances is permitted because of the headaches and costs of administering lots of small balances.

They roll the money into an ultrasafe IRA option so you don't get sued for mismanaging the money.

It is really considerate of you to be worried about this.
Topic Author
Tamer Wurf
Posts: 12
Joined: Tue May 29, 2018 5:19 pm

Re: 401k Plan Small Balance Automatic Rollover

Post by Tamer Wurf »

Thanks for the info all! I'll see what I can do.
Post Reply