As Attrition Levels Grow, so Managing Retirement Balances for Former Employees

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Hospital employment numbers at some hospitals are growing and at others they are dropping. But for those responsible for administering hospital retirement plans, both growth and reductions in workforce create potential problems when it comes to maintaining the retirement plans for former employees.

Hospitals, like other organizations which offer retirement plans, eventually find themselves responsible for managing the retirement plans which former employees leave behind. Many leave no instruction about what to do with these funds. Some then move or otherwise disappear, making it impossible to contact them about this matter. They are defined as "missing." Others who haven’t disappeared at all still fail to respond to requests from the hospital about their retirement accounts. They are identified as "non responsive."

Under normal times, the number of these plans and their maintenance cost accumulate on a slow, steady basis. But when planned layoffs occur, they can build rapidly. The Bureau of Labor Statistics (BLS) reported that there were more than 150 "mass layoffs" by hospitals in 2010 which it defines as one involving 50 or more employees. Some people leave shortly after a future layoff is announced, while others are let go when it takes effect. Most certainly some in each group will eventually be designated as missing or non responsive.

But the problem is still potentially troublesome for those hospitals that accounted for the nearly 32,000 people the BLS says were hired in 2010. Thanks to the growing recognition among employees of the value of retirement plans as well as the increased use of automatic enrollment procedures, a high percentage of these new employees will join the retirement plan. Later, when they eventually begin to move on or are involved in a future layoff many of them will leave their retirement plan behind and then disappear as well.

The cost and time required to administer these plans are but two issues of concern to hospitals. They also have fiduciary responsibilities to all plan participants, even those no longer with the hospital. They must conduct due diligence searches for these individuals, try to communicate all required plan information to them, and be certain that a valid investment election is always in effect. If they learn a participant is deceased they must distribute death benefits to beneficiaries. Satisfying these obligations is very problematic when numerous plan participants can’t be located or ignore a hospital’s efforts to communicate with them. Still, failure to comply with these requirements may result in fines, penalties, and/or law suits. Court cases like LaRue v. DeWolff (Supreme Court, 2008) established the right for plan participants to sue plan sponsors if they feel their retirement account has been mismanaged.

Another group of hospitals, those filing bankruptcy, also face this same problem yet from a slightly different perspective. Filing bankruptcy does not reduce a hospital’s responsibility to administer all of its retirement plan accounts including those owned by former employees. To make matters worse, a hospital’s HR staff most familiar with its plan may be among those laid off or leaving. This can complicate matters even more.

Hospitals filing Chapter 11 as a means of reorganizing and staying open may decide to keep their retirement plans active during the entire bankruptcy period. Still, they are under significant pressure to reduce costs which may mean finding an alternative to administering dozens or hundreds of retirement accounts for former employees.

Other hospitals may decide the best way to reduce expenses is to terminate the plan altogether. In this case they must follow required procedures to notify current and former employees and distribute their funds based on their instructions. But, again, what about the non-responsive or missing ex-employees?
Sometimes a purchaser of a hospital may want to terminate the seller’s plan and transfer the new employees to its plan? This is still a plan termination and the administrators for the purchasing company must address the issues of former and current employee participants.

The issue of missing and non-responsive former employees is not just a cost or financial issue for a hospital. Most hospitals actually do want to make a determined effort to reunite these former workers with their retirement plan funds so that they can continue accumulating retirement wealth.

In recent years, some hospitals faced with these issues have turned for assistance to companies that specialize in providing automatic IRA rollover services. Automatic rollovers were created by The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). When the retirement plan accounts of missing or non-responsive participants have assets of $5,000 or less, the act permits companies to transfer those funds to the control of a custodial firm specializing in automatic rollovers. That firm will then create and administer an IRA in each former employee’s name and undertake a search to find missing participants and establish communications with missing and non responsive individuals.

This is a win-win situation. The process relieves the hospital of the burden of maintaining these smaller balance accounts and custodians typically find the missing and non responsive participants and offer them a wider array of investment options than most hospital plans.

There are several IRA custody firms that offer these services. Hospitals can identify them by contacting organizations such as ASPPA (American Society of Pension Professionals & Actuaries), IFEBP (International Foundation of Employee Benefits Plans), NIPA (National Institute of Pension Administrators) or the PSCA (Profit Sharing/401k Council of America). Online searches will also identify automatic rollover firms and lead to their websites which present their capabilities. Trade and professional stories frequently cover this topic and often cite companies in the field. Many of them exhibit at retirement, employee benefits, and financial services trade shows and conferences.

The firms that offer automatic rollover services may follow different procedures or have different requirements for the IRA accounts they handle. There are several questions that hospitals may wish to ask when discussing a prospective engagement with an IRA custodian.

1. Is there a minimum sized account the firms will accept? Some require accounts to have an asset value of $1,000 or more.
2. How many accounts will be accepted? Not all firms can efficiently open and administer a large number of accounts at once and at the same time begin searching for missing participants.
3. How is the search for missing participants conducted? Does the firm work with outside search organizations that specialize in sophisticated searches?
4. Will the custodian rollover the accounts into Roth IRAs or allow for conversions from IRAs to Roth IRAs?
5. What technology platform does the firm use for account transfers? This should be accomplished quickly, accurately, seamlessly and securely with minimal implementation requirements. This technology must also be able to handle ongoing automatic rollovers in the future.
6. How long has the custodian been providing automatic rollover services? How many hospital automatic rollover clients does it have? How many rollovers has it implemented? What level of customer service does it provide to its IRA clients?

Like every other major employer, hospitals are watching expenses closely and seeking out opportunities to reduce costs. Those with large numbers of missing or non responsive former employees in their retirement plan may well want to investigate the cost saving potential of automatic rollovers.

Terry Dunne is SVP, Managing Director for Automatic Rollovers at Millennium Trust Company, LLC located in Oak Brook, Illinois. The company works with numerous record keepers and TPAs to provide Automatic Rollover services to their plan sponsor clients, and as of January 2011, has agreements with approximately 8,000 plan sponsors to provide Automatic Rollover services. Mr. Dunne has a bachelor's degree in Economics from the University of Notre Dame, an MBA in Accounting and Finance from the University of Chicago, and a master’s in Taxation from DePaul University. He has attained the designations of Certified Public Accountant, CPA®; Certified Financial Planner, CFP®; and Personal Financial Specialist, PFS®. He can be reached at 630.368.5675 or tdunne@mtrustcompany.com.