Council Position

Participant Rollovers from 

Qualified Retirement Plans
2

Synopsis

There is ample evidence that individuals who work with a professional advisor 

enjoy better retirement outcomes than participants left to their own devices. Current regulations however can prevent the advisor to a retirement plan from also providing advice to individual participants if that advisor receives compensation from 

that advice. Of particular concern is participants’ ability to access advice from the 

person they know well, who can help them most when they separate from service 

to retire: the advisor to the plan. It is ironic that participants should be unable to 

obtain service from the plan advisor just as they experience the most pressing need 

for retirement investment guidance. To help larger numbers reach successful retirement outcomes, the Council urges regulators to review applicable regulations with 

the ultimate goal to exempt from prohibited transaction status the provision of 

advice to participants by that plan’s advisor(s) at the time of a distributable event.

About the Council

The Council advocates for successful qualified plan and participant retirement outcomes through the collaborative efforts of experienced, qualified retirement plan advisors, investment firms and asset managers, and defined contribution 

plan service providers. The Council will accomplish this mission by its focus on:

• Identification of duties, responsibilities and attributes of the professional 

retirement plan advisor

• Sharing our professional standards with plan sponsors who are responsible for 

the success of their plans

• Providing collective thought capital to decision makers, product providers, 

legislators and the public, 

• Giving voice to the retirement plan advisor community
3

A large body of research provides evidence that individuals who work with a professional advisor enjoy superior retirement outcomes, irrespective of personal income, age, gender and other factors. 

The 2010 edition of the Retirement 

Confidence Survey conducted annually 

by the Employee Benefits Research Institute found that 33% of workers and 

32% of retirees seek the investment advice of a professional advisor within any 

given 12-month period.1 Another study 

conducted in 2010 by the ING Institute for Retirement Research based on 

14,000 users of INGCompareMe.com 

found that the amount of time participants spend with advisors is a key driver of long term retirement success. The 

savings rate of individuals who spend a 

great deal of time discussing their investments or their plan for the future with 

a financial advisor is three times that of 

individuals who do not spend any time 

with an advisor. Even among those individuals who have met with a financial 

advisor only once or twice, the savings 

rate is 1.5 times that of advisors who 

have not spent any time with an advisor.

The study also found that individuals 

who work with an advisor have accumulated twice as much as others for retirement. 

The retirement nest egg of individuals 

who spend a great deal of time with their 

advisor is even larger, at more than three 

times the amount accumulated by individuals who have never met with an advisor. 

Individuals who work with financial advisors also have more money available after 

covering essentials every month, which 

could be indicative of a more responsible 

spending behavior instilled by advisors. 

The study notes that “while time spent 

working with a financial advisor does increase with age and household income, 

the effect of that time can still be seen 

within age and income cohorts. Regardless of age or income, more time working 

with a financial advisor can be seen in increasing amounts of retirement savings.”2

1 Helman, Ruth, Copeland, Craig, and Vanderhei, Jack, The 2010 Retirement Confidence Survey: Confidence Stabilizing, But 

Preparations Continue to Erode, Employee Benefits Research Institute Issue Brief ( March 2010) 22-23

2 ING Institute for Retirement Research, Working with an advisor: Improved Retirement Savings, Financial Knowledge and Retirement Confidence (December 2010) 5-6

Participants wh

work with an

advisor enjoy

superior retiremen

outcomes
4

“The New Rules of Engagement for 

401(k) Success”3

, a study conducted by 

Charles Schwab in June 2010 and published in September 2010 found that 

70 percent of working Americans who 

participate in a 401(k) plan say the plan 

is their only or primary source of retirement savings. However, less than half 

(47%) feel very confident when it comes 

to making investment decisions and 53 

percent find retirement benefits even 

more confusing than health care benefits. An analysis of 401(k) plans serviced 

by Charles Schwab and Company finds 

that use of advice can have a positive 

impact on participant savings, diversification, and investing behavior. For example, the study found that 70 percent 

of participants who receive advice on 

their 401(k) plan account make changes 

to their deferral rates, and their savings 

rates nearly double as a result, jumping 

on average from 5 percent to 10 percent 

of pay. Similarly, the average participant 

who has not received professional advice invests in fewer than 4 asset classes, 

but participants who receive advice use a 

minimum of 8 asset classes. When markets go through periods of unusual volatility, the vast majority of advice users stay 

the course in their 401(k) portfolio. For 

instance, the Charles Schwab study found 

that 92% of advice users remained fully 

invested through the down market of July 

2008 - February 2009 and for the market 

rebound through the remainder of 2009. 

In a press release, Steve Anderson, 

head of Charles Schwab Retirement Plan 

Services concluded that “when we look at 

participant behaviors and results among the 

401(k) plans we service at Schwab, the use 

of professional help and guidance is one 

of the biggest factors in 401(k) success.” 

In a paper published October 2010, 

Professor Kathryn L. Moore reported 

results of a study supporting the benefits of investment “Help” delivered by 

target-date funds, managed accounts and 

online investment advice based on actual experience. Drawing data from seven 

large 401(k) plans for the period from 

January 2006 through December 2008, 

3 Charles Schwab and Company, The New Rules of Engagement for 401(k) Success (September 22,1010) 27-37 3 Charles Schwab 

and Company, The New Rules of Engagement for 401(k) Success (September 22,1010) 27-37
5

the study found median annual return for 

plan participants who used one of three 

forms of investment “Help” almost 2 

percent (186 basis points) higher, net of 

fees, than the median annual return for 

participants who did not use any investment “Help”.4

 Professor Moore concludes that “it does not seem unreasonable to assume that good investment advice should lead to higher returns, at least 

if the investment advice is not too costly.”

When a distributable event occurs 

such as separation of service, many participants roll over retirement plan assets 

to an Individual Retirement Account 

4 Moore, Kathryn L., Regulating Investment Advice for 401(k) Plan Participants: Is More Advice the Answer? (February, 08 

2011). NYU Review of Employee Benefits and Executive Compensation, Chapter 5, 2010.

5 Based on its studies of the IRA Rollover market, Spectrem Group estimates that in any given year approximately 50% of all 

US retirement plan assets available for rollover are actually rolled into an IRA, 5-8% is transferred to another qualified plan at the 

new employer, 10-12% is allocated to some kind of income arrangement (including annuity distribution options) and 15-20% 

goes out in taxable withdrawals. The remainder (10%-30%) is left in the plan.

(IRA)5. The decision to roll over retirement plan assets, often made without 

the help of a professional advisor, can 

worsen the retirement outlook of participants who do not give careful consideration to all the characteristics of the IRA 

account to which they transfer assets, or 

to the characteristics of the various plans 

where they have accumulated account 

balances or benefits. For this reason, 

we believe that it is critical for the long 

term retirement success of US workers 

to have access to a professional advisor 

at the time of a distributable event to 

guide them through the choices available.
6

I

n their evaluation of an advisor for 

their personal retirement assets, 

participants consider if the person sitting across the desk is the right advisor 

for them and why. We contend that participants should be free to choose the advisor best positioned to meet their needs 

regardless of whether this advisor does 

business with the sponsor of the plan or 

not. At the time of a distributable event, 

it is logical for a participant to turn to the 

person who knows their personal financial 

situation best: the advisor to their 401(k) 

plan. For many, this advisor may be the 

only professional advisor they’ve ever 

met. Paradoxically, those who turn to the 

plan advisor at the time of a distributable 

event today are likely to 4 Moore, Kathryn L., Regulating Investment Advice for 

401(k) Plan Participants: Is More Advice 

the Answer? (February, 08 2011). NYU 

Review of Employee Benefits and Executive Compensation, Chapter 5, 2010. 5 

Based on its studies of the IRA Rollover 

market, Spectrem Group estimates that 

in any given year approximately 50% of 

all US retirement plan assets available for 

rollover are actually rolled into an IRA, 

5-8% is transferred to another qualified 

plan at the new employer, 10-12% is allocated to some kind of income arrangement (including annuity distribution options) and 15-20% goes out in taxable 

withdrawals. The remainder (10%-30%) 

is left in the plan. find out that this person 

is the one advisor whom they are not allowed to hire because current regulations 

prevent the advisor to a retirement plan 

from also providing advice to individual 

participants if that advisor receives compensation from that advice. Participants 

are left to wonder why the person trusted 

by their employer to provide advice is 

not right for them as an individual investor and whether the employer should 

have trusted this advisor in the first place.

We contend that the advisor to the 

plan is generally best positioned to provide participant advice and should not 

be precluded from doing so. Indeed, the 

purpose of offering retirement plans 

is to drive US workers to successful retirement outcomes and plan advisors 

are in a unique position to mitigate the 

self-defeating participant behaviors that 

stand in the way. The plan advisor may 

be the only advisor with whom they will 

have a discussion about retirement fundParticipants should b

free to use the services

of their advisor

of choice
7

ing in their entire lifetime. The plan advisor may not be the best advisor for each 

and every participant in a given plan but 

we argue that excluding the plan advisor from providing participant advice 

runs contrary to the intent of ERISA.

We advocate for freedom of choice 

because our end objective is about retirement success and the proper outcome 

can only be achieved with a comprehensive review of all sources of retirement 

funds including defined contribution 

plans, defined benefit plans, non-qualified 

deferred compensation, stock ownership 

plans, stock options, and personal assets. 

The increased emphasis on retirement 

readiness as the gauge to evaluate the success of retirement plans impels service 

providers, plan sponsors and their advisors to aggregate information about all 

accounts held by participants. Armed with 

information about all the plans offered 

by a given sponsor, plan advisors are in a 

unique position to help participants make 

an educated decision regarding their distribution options. Yet, they are the one 

option not available to participants today.
8

Clearly, professional standards need to be established that denounce rollovers that are not in the best 

interest of participants. The Council does 

not condone advisor recommendations 

to roll over retirement plan assets for the 

sole purpose of increasing compensation; it is fair to require (1) information 

and education about all distribution options available to eligible participants (2) 

affirmative participant election to rollover assets to an IRA, (3) a demonstrable retirement benefit for each and every 

rollover transaction. On the other hand, 

we consider a rule prohibiting plan advisors from delivering participant advice 

at the time of distribution inappropriate 

because it assumes that personal recommendations from a plan advisor are inherently wrong when in reality, participants 

relying on plan advisor recommendations 

are making a better-informed decision.

Retaining assets in the plan often may 

be in the best financial interest of plan 

participants, but it is not always the case. 

Larger plans are generally in a position 

to negotiate lower fees from investment 

management firms and service providers; 

they are also in a better position to access 

With clea

professiona

standards, solicitation

of personal busines

at the time of a

distributable event can

be exempt of prohibit

transaction status

high-quality investment managers not ordinarily available to individual investors. 

Conversely, a retiring participant with a 

sizable account balance accumulated over 

a long career at a small organization may 

be able to find a solution with lower investment costs outside the organization’s 

plan. With the help of an advisor, an individual with participant accounts in multiple plans may be able to access a wider 

choice of options at lower investment 

costs in a consolidated personal account. 

Moreover, the ease of managing asset allocation in a consolidated account reduces the chances of investment overlap and 

helps control risk. Under certain circumstances such as the failure of a plan sponsor to meet fiduciary obligations, it could 

even be detrimental to a participant’s best 

interest to keep her assets in the plan.

Equipped with years of information 

about individual participants (employment history, goals, financial literacy, risk 

profile), the plan advisor is often the person best equipped to provide advice to 

a participant at the time of a distributable event such as retirement. However, 

fiduciary rules may hinder or preclude 

the advisor from getting involved at all.
9

Going beyond regulation, we propose the promotion by the Council of 

professional best practices that apply 

uniformly to all distributions of plan 

assets including rollovers to an IRA, 

plan-to-plan rollovers, periodic distributions and lump-sum distributions.

At the participant level:

1. Gathering of financial information 

pertinent to the transaction such 

as the account balance and asset 

allocation of known participant 

accounts,

2. Explanation of the pros and 

cons of the transaction including 

alternatives available, breadth 

of investment options, fiduciary 

process , asset allocation options, 

accessibility, cost and service,

3. Provision of information regarding 

investment options available and 

the diversification benefits of a 

distribution,

4. Quality consultation with each 

individual concerned to collect 

facts and circumstances with the 

ultimate goal of establishing the 

client’s retirement investing needs 

and objectives,

5. Concerted discussion of the 

client’s personal tolerance for 

risk and documentation of the 

agreedupon risk profile, and

6. Recommendation of investments 

suitable for the client’s specific 

situation.

At the plan level:

1. Presentation of the participant 

distribution advice service to the 

named fiduciary and the plan 

committee if one is present, and

2. Disclosure of the service to plan 

sponsors
10

All the evidence available to us indicates that participants who 

benefit of professional guidance achieve 

superior retirement outcomes. The advisor advantage is not solely an artifact 

of the profile of advice users in terms 

of age, occupation or income, but also 

reflects the behavioral changes that advisors inflict to the participant population. To achieve a successful retirement, 

the vast majority of participants require 

some sort of professional help, particularly at the time of distribution when the 

potential loss of readiness is particularly 

great. Professional Retirement Plan Advisors are in a unique position to deliver 

the assistance participants need at the 

time of a distributable event because of 

their knowledge of the plan, of the participants and, their commitment to abide 

by established professional standards. For 

this reason, the Council argues that participant guidance provided at the time of 

a distributable event by Professional Retirement Plan Advisors that have a relationship with the plan should be exempt 

of prohibited transaction status. We urge 

the Department of Labor to initiate a 

full review to identify rules and regulations that deprive participants of access 

to the one source of advice that will help 

them achieve a successful retirement.

Bottom Line

Retirement Succe

for Participant