What to do with old 401-k assets

Doug Horn

Our society no longer works for one company for life and as a result, many employees end up with various retirement accounts still with former employers. According to the Bureau of Labor Statistics, there is only one report covering 18 to 44 year olds and these baby boomers held an average of 11 jobs during that work period. While not every employer offers a retirement plan, the likelihood having one or more retirement accounts still with a former employer is pretty high.

Due to our society also being very mobile, this adds to the difficulty of former employers to maintain current addresses for all of their past employees, potentially resulting in the owner losing track of their assets. While most 401-k plans are governed by ERISA rules and as such, these assets are not subject to a state’s unclaimed property regulations. Thus, the assets can remain invested for years even if the owner has lost track of these funds, however, they are not being managed. It is the responsibility of the owner to maintain contact and to control the investment allocation and investment selection.

Many plans have formal investment reviews, but this process is used to hire and fire the various fund managers within the plan. Thus, while the plan may take steps to remove poorly managed funds, this process does not impact the investment selection of those employees who are participating. For smaller plans which may not have this formal process, unsupervised accounts may have a portion or all of the assets allocated to poor performing selections, or selections with risk and objectives no longer appropriate for the owner. Once an employee leaves a firm, the incentive to manage their retirement assets also diminishes since they are no longer on-site for the plan’s representative to offer their assistance.

Thus, in my opinion it is best to roll these assets to a personal retirement account or to the new employer’s retirement plan if the new plan permits such contributions. Consolidating accounts reduces the paper load and strengthens the supervision of these assets. While many 401-k plans offer a wide variety of investment choices, there may be even more plans which offer very few choices within the plan. Therefore, by rolling these assets to an individual retirement account, the quality and selection often increases.

For those employees who do not want the job of managing their investments, rolling the 401-k plan to an IRA through a financial advisor may be the best solution.

Earlier I mentioned the state’s Unclaimed Property Division. While retirement assets may not be subject to their rules, it is worthwhile to search the home state of yourself and parents at least every other year for any lost or forgotten property. Tennessee’s site is: www.tennesseeanytime.org/unclp/. There is a link to the search page from this site.

For assistance with portfolio allocations, insurance, estate planning, or investment management contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our learning center on our website, www.goqfc.com. There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other free tools.

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