What departing employees don’t know about their 401(k) options can cost them dearly.
That’s because nearly 70% of workers don’t talk to a financial advisor about making 401(k) distributions, according a survey released today by Financial Engines, the workplace division of nationwide advisory firm Edelman Financial Engines, which is launching a new Fiduciary Distribution Service to capitalize.
The new review program will provide a one-on-one review to employees at the more than 3,200 companies that currently work with the company. Currently the firm manages $200 billion in assets for 1.1 million clients and plans to use its 180 planner offices across the country to deliver the fiduciary reviews.
“Over 3,200 companies have hired Financial Engines because of our industry-leading financial planning and investment advice, and our new Fiduciary Distribution Review program helps ensure that employees don’t squander their chances of achieving retirement security through poor decisions around plan distributions,” said Christopher Jones, chief investment officer at Edelman Financial Engines.
The new review will help employers who “spend large amounts of time and money providing employees with access to high-quality and low-cost investment options in their plan. They also provide crucial fiduciary oversight to ensure financial providers are protecting employees’ best interests,” Jones said.
“There is a lot of confusion and a general lack of awareness among employees about their 401(k) distribution options when they retire or change jobs,” said Ric Edelman, co-founder and Chairman, Financial Education and Client Experience for Edelman Financial Engines.
“There can be huge consequences from making the wrong decision,” Edelman said, “ranging from taxes and penalties to higher fees and risky or poor performing investments.”
He added that the challenges are particularly acute for departing employees since nearly half of survey respondents (47%) weren’t sure they knew the fees in their current retirement accounts, according to the new Financial Engines survey.
“Not understanding your distribution options can harm your ability to reach your retirement goals,” Edelman said. “Often, leaving the money with your old employer is the best choice.”
The firm’s new Fiduciary Distribution Reviews will “help millions of America’s workers avoid financial risks, fees, taxes, penalties and leakage when they change jobs,” the firm said in a release. The reviews will also help concerned plan sponsors protect themselves as plan fiduciaries.