VOL. 125 | NO. 163 | Monday, August 23, 2010
Retirement Plans Affected By Job Changes
JEFF IRELAND | Special to The Daily News
The average American has three or four jobs in a lifetime.
Changing jobs is a hassle for many reasons, and one of the biggest is what to do with investment and retirement plans when financial services were provided through a company that is now an ex-employer.
Getting three and four 401(k) statements in the mail every month can be confusing and cumbersome to even the most seasoned investor.
Companies, of course, realize this. And as a result many employers, along with their benefits providers, are angling to keep ex-employees’ retirement plans.
Chirag Chauhan, a partner at The Barnett Group in Southeast Memphis, sees it every day.
“There are multiple reasons why an employer keeps an ex-employee,” Chauhan said. “Cost is not the only reason. The true objective of having a quality retirement plan is to use it as a retention and recruiting tool. It can make you have a competitive advantage.”
Cost is certainly not the only reason, but it’s a big one.
Just like anything else in a free-market economy, savings can be found when plans are purchased in bulk.
“They’re trying to make it better for themselves,” said Fred Hiatt, chief operating officer at Red Door Wealth Management. “If it costs them money, they’re not going to do it. Everything today is about managing costs.”
The concept of employers keeping ex-employees in their financial fold is relatively new, a byproduct of the recession.
“It’s a lot more prevalent now because of what we’ve gone through the last two or three years in the market,” Chauhan said.
Chauhan knows people who have lost 30 to 40 percent of their retirement accounts because of the market’s downturn – and losing money makes people nervous.
That’s where people like Chauhan and Hiatt are important. When it comes to managing money, a lot of people like to talk to a human being. All kinds of advice and strategies can be obtained from hundreds of websites, but there’s nothing quite like sitting down face-to-face with someone who knows the ins and outs of investing.
Chauhan speaks with individuals and groups often. He understands that when someone becomes comfortable with an advisor and learns to trust them, they prefer to maintain that relationship.
“Everybody has a website,” said Chauhan. “But a lot of times that one-on-one interaction is the missing link. So you’re seeing more and more that employers are asking us to come around more and more. I do investment seminars quarterly.”
For members of the baby boomer generation, many of whom are close to retiring, stable investing is even more crucial right now. The prospect of dealing with a new benefits provider this late in the game is not an attractive option. In many cases there’s a fee to move money to a different provider.
All of these factors have led to individuals staying with a familiar face, employers trying to keep assets up in the form of employee investment money and financial advisers attempting to provide a service that both parties need.
The benefits for companies to keep ex-employees on board are multifaceted, Chauhan said.
“Say I’m an employer. I want to offer a very good plan with good advice because I want my employees to feel that they’ve got something they can’t get elsewhere,” he said. “It’s a good thing from a retention standpoint, from a recruitment standpoint … . Yes there are cost reasons why an employer may want more money in there. But you also have to think about the cost of retaining and recruiting an employee. It only behooves them to have a good, solid, quality plan.”