Financial Engines, the workplace division of Edelman Financial Engines, has launched an advisory service to help employees decide what should be done with job-based benefits such as 401(k) plan assets when they leave a job.
Under the service, known as Fiduciary Distribution Review, departing employees will be provided one-on-one meetings with a Financial Engines financial planner to discuss retirement plan distribution choices, in-plan income options and separation benefits.
“There is a lot of confusion and a general lack of awareness among employees about their 401(k) distribution options when they retire or change jobs,” said Ric Edelman, co-founder and chairman, financial education and client experience for Edelman Financial Engines, in a statement.
Those employees can withdraw money from their 401(k) accounts, but they’ll owe taxes on the distribution and a 10% penalty if under the age of 59-1/2; move the assets into a rollover IRA; or leave the funds in their 401(k) plan, which could likely charge lower institutional-level fees for investment options than those available in a rollover IRA. They also may have the option of moving the assets into the 401(k) plan of a new employer.
“There can be huge consequences from making the wrong decision,” Edelman said, “ranging from taxes and penalties to higher fees and risky or poor performing investments.”
Many employees aren’t even aware of the options available to them. According to a survey of 1,071 individuals between ages 35 and 65 released by Financial Engines, 42% were unaware they could keep assets in a 401(k) plan even after leaving a job and 28% didn’t know the potential tax liabilities and penalties if they choose certain distribution choices for those assets. Fifty-one percent were unaware that they might have the options of a reverse rollover, moving funds from an IRA account into an employer-sponsored 401(k) plan if their new employer allowed it.
Among those who withdrew money from a 401(k) before their retirement, slightly more than one-quarter got no information or help from any resource, but nearly 80% of those who consulted a financial advisor said they felt more confident about their distribution strategy.
‘Not understanding your distribution options can harm your ability to reach your retirement goals,” said Edelman. “Often leaving the money with your old employer is the best choice.”
The Fiduciary Distribution Review extends the financial wellness services that Financial Engines already offers defined contribution plan sponsors and their employees. It provides departing employees private one-on-one meetings with a Financial Engines financial planner via phone or in person that can last as long as is needed to address the complexity of an employee’s situation, Edelman tells ThinkAdvisor.
The service is available at no additional fee for plan sponsors who are current or future clients of Financial Engines or their employees and it’s included in the premium advice services that employees can choose for an additional fee.
Soon after private equity firm Hellman & Friedman, which owned a majority interest in Edelman Financial Services, announced in late April 2018 that it was acquiring Financial Engines and merging the two firms, financial advisor and blogger Michael Kitces wrote that the merger portended “the beginning of the end of the 401(k) rollover bonanza. Retirees would stick with the Edelman Financial advisor they had been working with for their existing 401(k) plan rather than find a new one in retirement,” Kitces explained.
He says the firm’s Fiduciary Distribution Review doesn’t appear to be such a catalyst because it is offered at the moment of a potential rollover, not before. “The real challenge [for other advisory firms] will come if/when/as Financial Engines can make Edelman advisors available more directly to plan participants … such that by the time they’re ready to roll over, they’re already receiving ongoing financial advice from their Edelman advisor within the plan in the first place.”
Whether that happens remains to be seen. In the meantime, the service can help employers boost morale among employees who remain with the company, reduce employee turnover and retain 401(k) assets, which can help in plan sponsors’ fee negotiations with plan administrators and asset managers, says Edelman.
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