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Betterment Pushes Federal Officials to Digitize 401(k) Rollovers
By Insurance Wire Staff, . Insurance Wire.
When workers change jobs, they often have the option to roll their old 401(k) savings into a new account, keeping their retirement funds consolidated and invested. But nearly half of rollovers initiated on Betterment's platform go unfinished. Betterment, a digital investment platform, argues that the culprit is a rollover process still built around physical paperwork and paper checks.
Betterment laid out its case in a letter to federal officials, making the argument for a fully digital approach to processing 401(k) rollovers. The company says standardized electronic transfers could cut delays and reduce administrative work for everyone involved.
What the current process costs workers
A 401(k) rollover is the transfer of retirement savings from one employer's plan to another, or into an individual retirement account, when a worker changes jobs. Under the current system, many legacy retirement providers still require physical paperwork and paper checks to complete that transfer. That means a worker who leaves a job may wait weeks for a check to arrive by mail, then deposit it and wait again before the money is back in the market.
The practical consequence is that retirement savings can sit outside the market for an extended period. For workers who never finish the process, the money may stay in a former employer's plan indefinitely.
What Betterment is asking for
Betterment's letter to federal officials calls for standardized electronic transfers to replace the legacy requirements. Employee Benefit News also notes that the company is preparing for potential IRS and Treasury regulations that could ban legacy identity verification requirements, which are among the steps that currently force providers to rely on paper.
The argument is straightforward: if banks can move money electronically in seconds, there is no technical reason retirement savings should travel by check. Betterment's completion rate data suggests the existing burden is enough to stop nearly half of rollovers from ever finishing.
What to watch
Whether the IRS and Treasury move on this is the open question. Betterment's letter is a lobbying document, not a regulatory announcement, and no rule change has been proposed or finalized. Employers and plan administrators who handle rollovers should watch for any IRS or Treasury guidance on electronic transfer standards and identity verification, since a rule change in either area would require updates to existing rollover procedures.
For workers with a rollover in progress, the current process remains unchanged: paper checks and physical forms are still the norm at many providers.
Source: https://www.benefitnews.com/news/How-to-Modernize-the-401(k)-Rollover-Process
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