Employees who change jobs can have a major negative impact on defined contribution systems, according to a report by the Boston Research Group.
When employees leave, plan sponsors face increased costs, risks and potential liability resulting from cash-outs, stranded accounts and missing participants. One solution is to offer participants a seamless way to move their 401(k) savings to another retirement savings vehicle, which can help stem some of these "leakage" challenges, the report found.
Warren Cormier, president of Boston Research Group, said in the report that participants tend to take the path of least resistance when it comes to complex rollover procedures. That means they either cash out altogether or they strand their assets at their former company and forget all about them.
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