Automatic rollovers for small-balance retirement accounts


Wednesday, May 29, 2019 | By Jean Tanenbaum

Automatic rollovers for small-balance retirement accounts

Many American workers who hold several jobs over the course of their careers accumulate multiple small-balance retirement accounts. This trend is compounded by 50% of plans adopting auto-enrollment provisions. When employees leave a company, they tend to leave their small-balance accounts behind, creating administrative burdens and risks for plan fiduciaries.

 The Internal Revenue Code requires plans with an involuntary cash-out provision to roll accounts valued at over $1,000 directly to an individual retirement account (IRA) or annuity unless the participant makes another election. This requirement is often referred to as an “automatic rollover.”

Automatic rollovers reduce the administrative burden of transitioning small-balance retirement plans for missing or nonresponsive participants by:

  • Reducing plan expenses
  • Potentially eliminating the cost of an audit
  • Simplifying participant disclosures
  • Eliminating the need to track former employees
  • Reducing fiduciary responsibility

When small-balance accounts accumulate within a plan, they can create problems for plan participants and sponsors. Because fees are often based on the number of accounts or the average account balance within a plan (with higher costs for smaller balances), a large volume of small-balance accounts drive up fees. An accumulation of small accounts can also burden plans with an increase in administrative responsibilities, as participants are required to be provided with certain annual and quarterly disclosures. This is especially difficult to provide to “missing participants.” Additionally, small-balance accounts increase risk for the plan’s fiduciary, which retains responsibility for the accounts of terminated participants. Automatic rollovers resolve these issues.

There are many challenges associated with automatic rollover process. How do you contact an unresponsive participant? What requirements must an account meet to be eligible for automatic rollover, and what must the fiduciary provide to the participant before the rollover can be initiated? Our whitepaper, Best practices for addressing automatic participant rollovers, covers these challenges as well as the benefits provided by automatic rollovers.

SS&C’s Automatic Rollover Program is used by more than 40 financial institutions and 30,000 plan sponsors. The platform automates the exchange of participant data between plans, administrators, and selected IRA providers. Finding the right program can help plan sponsors save time and money, while also helping participants reconnect with their retirement savings. It is important to choose a program that specializes in automatic rollovers and has the necessary agreements and procedures in place to support plan fiduciaries in complying with the safe harbor requirements.



Asset Management, Insurance, Wealth Management