The Next Roth 401(k) Issue: How to Handle Small Rollovers?
August 22, 2006 (Des Moines, Iowa) — As growing numbers of plan sponsors add the Roth savings option for their 401(k) and 403(b) plans, the new twist is what to do when employees leave small amounts behind? Principal Bank, a member of the Principal Financial Group®, has the answer with a new Roth option for the Principal Bank Safe Harbor IRASM. This new option helps plan sponsors fulfill the requirement that the low-balance Roth 401(k) and 403(b) accounts of departing employees be rolled into an IRA, if they don't want to retain them in their plans.
The Principal Financial Group was one of the first financial institutions to make the new Roth savings option available to plan sponsors for 401(k) and 403(b) plans when it became effective last January. Now, Principal Bank is one of the first to offer plan sponsors a way to roll over small-balance Roth 401(k) and 403(b) accounts into a Roth IRA.
"The timing for this new IRA option couldn't be better. Now that the new pension reform bill has been signed into law, making the Roth savings option permanent, we expect significantly more plan sponsors will add the feature. They will need a way to manage these accounts when their employees leave," said Barrie Christman, president and CEO of Principal Bank. "The Roth IRA option will do for the new employer-sponsored Roth investment accounts what the Principal Bank Safe Harbor IRA is doing for traditional qualified investment accounts. It will allow plan sponsors to reduce plan administration costs by removing costly low-balance accounts from their plans. At the same time, this option will help employees continue to save for retirement by preserving the tax-advantaged status of their funds."
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) requires that distributions of small amounts (between $1000 and $5000) left in 401(k) and 403(b) accounts when employees leave be automatically rolled into an IRA, unless the participant elects otherwise. Christman added: "We have a streamlined process for handling the safe harbor requirements associated with automatic rollover of retirement plan small amount distributions. This turn key option is available to all plan sponsors and retirement services providers, and demand has been strong."
The Principal Bank Safe Harbor IRA has accumulated close to 40,000 new rollover accounts, with current activity at a sustained average of 800-900 new accounts per week.
The Principal Bank Safe Harbor IRA, Roth option offers the following features:
- Roth IRA with funds deposited in a Qualified Savings Account (since there's no income limit on the establishment of the Roth 401(k), there's no income limit on its conversion to a Roth IRA)
- Competitive interest on all balances
- FDIC insured up to $250,000 per depositor
- Low annual fee of only $15 to be paid by the former employee
- No cost to plan sponsor rolling over retirement funds
- No transaction, investment or early surrender fees
- Funds are liquid with transfers and/or distributions available as needed
- Assistance from personal bankers via telephone 24/7/365
About Principal Bank
Principal Bank, a member of the Principal Financial Group®, is an FDIC-insured federal savings bank, offering customers traditional and innovative banking products and services through the Internet, telephone personal bankers (available 24 hours a day, 365 days a year), U.S. mail and a nationwide network of ATMs.
About The Principal Financial Group
The Principal Financial Group® (The Principal®)1 is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance and banking through its diverse family of financial services companies and national network of financial professionals. A member of the Fortune 500, the Principal Financial Group has $206 billion in assets under management2 and serves some 16.3 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
1) "The Principal Financial Group" and "The Principal" are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
2) As of June 30, 2006
