Because many individuals have had trouble accessing their 401(k) assets upon leaving their employer, the U.S. Department of Labor has decided to step in. The employee advocate is about to propose new rules that could make this process much easier and at the same time much quicker, according to The Wall Street Journal.
The department is planning to make the new rule proposal public sometime this spring and hopes that the new rule will come into effect by the end of the year. Mainly, the rule will be geared toward authorizing financial institutions to release plan funds to workers that have been voided, or have left a company that is no longer operational.
Because a growing number of Americans participate in 401(k) plans, the new rule will have a positive effect on many. The Journal reports that 61% of private sector retirement assets were in defined contribution plans at the start of 2005.
Under the current system, approximately 33,000 workers per year, with combined retirement assets totaling about $850 million, have trouble accessing their retirement assets upon ending employment.
"This is something that our people in the field have been seeing quite a bit," said Ann Combs, assistant secretary of labor for employee benefits security. "More small businesses are adopting financial planning, but when they fall, there is no process in place."
Larger companies are less prone to this type of situation, because when they collapse, they usually have personnel in place specifically for these types of administrative duties, while smaller firms do not have any method by which the assets are distributed.
Those individuals who have their retirement assets in a defined benefit plan have it easier, as there are federal laws protecting their assets, and their pension plans are insured by a federal agency. However, participation in these types of plans is decreasing, as defined contribution has really taken over the last couple of years. Therefore, a new rule for DC plans is essential.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.