SaveDaily - Safe Harbor IRA Rollovers

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Safe Harbor IRA Automatic Rollovers

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Reduce your fiduciary liability.

The Regulations

What changes to the regulations allow for Safe Harbor Automatic IRA Rollovers?

Employers have historically been permitted to distribute to an employee (i.e., "cash out"), without the employee's consent, an employee's distributable benefits under a qualified retirement plan if the value of those benefits is $5,000 or less. The Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA") amended section 401(a)(31) of the Internal Revenue Code of 1986, as amended (the "Code") to require employers that cash out benefits up to $5,000 to transfer these amounts to an individual retirement plan (an "IRA") within the meaning of section 7701(a)(37) of the Code.

When EGTRRA amended section 401(a)(31) of the Code, it also amended section 404(c) of the Employee Retirement Income Security Act of 1974 ("ERISA") to establish a "safe harbor" which generally relieves retirement plan fiduciaries of responsibility if the automatic transfer is made in a manner consistent with the final regulations enacted by the Department of Labor (the "DOL") as published in regulation 2550.404a-2 of Title 29 (the "Regulation").

The new automatic rollover regulation took effect March 28, 2005.

What amounts are affected by this regulation?

Vested balances that do not exceed $5,000 can be automatically transferred to a Safe Harbor Automatic Rollover IRA.

What must a Plan Sponsor do prior to utilizing a Safe Harbor Automatic IRA Rollover (fiduciary responsibility)?

Prior to utilizing a Safe Harbor Automatic IRA Rollover, a plan sponsor must:

1.		Amend their plan document to allow for this type of distribution.
2.		Choose a Safe Harbor IRA provider.
3.		Have a written agreement between the plan sponsor and Safe Harbor IRA provider.
4.		Notify plan participants of the plan amendment. Provide participant with contact information for the Provider and on the specific investment product their balances will be rolled into.

The DOL regulation states "...if, after receiving the notice described in section 402(f), a participant fails to elect to receive a mandatory distribution directly or have it paid in a direct rollover to an eligible retirement plan, the distribution will be paid in a direct rollover to an individual retirement plan."

What are the fees associated with a Safe Harbor Automatic Rollover IRA?

The DOL regulations specify "all fees and expenses attendant to an individual retirement plan, including investments of such plan, (e.g., establishment charges, maintenance fees, investment expenses, termination costs and surrender charges) shall not exceed the fees and expenses charged by the individual retirement plan provider for comparable individual retirement plans established for reasons other than the receipt of a rollover distribution subject to the provisions of section 401(a)(31)(B) of the code.

What are the relevant dates?

March 28, 2005 - after this date plan sponsors are prohibited from automatically cashing out participants with greater than $1,000. Plan Sponsors can however cash out participants who request a distribution.

December 31, 2005 - all plans must be amended by the plan fiscal year end, or December 31, 2005, which ever comes first (e.g. a plan with a fiscal year end of July 1 must be amended by July 1, 2005, a plan with a fiscal year end of December 31 must be amended by December 31, 2005).

SaveDaily and UMB Offering

What are the fees associated with a Safe Harbor Automatic IRA Rollover to the plan sponsor and the participant?

Under the SaveDaily/UMB Safe Harbor Automatic Rollover IRA, there is no fee to the plan sponsor. Additionally, there is no set up fee or transfer fee. SaveDaily/UMB charges a flat annual fee of $50.00. This fee is charged directly against participant assets in their individual retirement plan.

How does a plan sponsor establish a Safe Harbor Automatic Rollover IRA for a terminated employee?

Once a written agreement is in place between the plan sponsor and SaveDaily/UMB and a participant is notified of the distribution, SaveDaily/UMB requires pertinent participant information (name, address, social security number and date of birth). This information can be included with a check or wire, or can be sent in electronic form. Once funds and participant information is received, SaveDaily/UMB will open a Safe Harbor Automatic Rollover IRA in the name of the participant. Note that SaveDaily/UMB will accept a single check or wire for multiple rollover participants as long as the pertinent participant information accompanies the funds.

What are the steps for a plan sponsor to get started?

There are six steps to implement SaveDaily/UMB Safe Harbor Automatic Rollover IRA's:

1.		Review SaveDaily/UMB's plan document (and disclosures) regarding IRA's - provided by SaveDaily/UMB
2.		Review the investment product (money market fund) provided by SaveDaily/UMB - provided by SaveDaily/UMB.
3.		Sign an agreement with SaveDaily/UMB for Safe Harbor Automatic Rollover IRA's - provided by SaveDaily/UMB.
4.		Amend qualified retirement plan to allow for Safe Harbor Automatic Rollover IRA's - template Summary Material Modification (SMM) provided by SaveDaily/UMB.
5.		Notify terminated participants of the amendment and how their distribution will be handled should they chose not to respond - notification template provided by SaveDaily/UMB.
6.		Forward funds and participant information to SaveDaily/UMB to open Safe Harbor Automatic Rollover IRA's.

Once a participant's account is rolled over into a Safe Harbor Automatic Rollover IRA, can the participant chose different investments? If so, what are the costs to change investment elections?

Yes, once a Safe Harbor Automatic Rollover IRA account is opened and funds are received, a participant can access their account 24/7, get educational information, talk to licensed representatives, change investment elections, and add or redeem funds without incurring any additional fees. Participants can also review transactions, statements, confirmations and messages stored online in SaveDaily's secured message center.

Who is SaveDaily and what is their role?

SaveDaily is an SEC registered investment advisory formed in 1999 to develop low cost investment technologies. SaveDaily leverages its innovative straight-through-processing and record keeping technology and its all-electronic money movement infrastructure to deliver a feature rich, ultra-low cost, efficient, simple to use, and simple to deploy servicing platform to the defined contribution and asset management market spaces. In addition to record keeping and money movement services, SaveDaily provides client support and education information to it's clients.

Who is UMB bank and what is their role?

UMB bank provides custody and consulting services for the SaveDaily/UMB Safe Harbor Automatic Rollover IRA offering. UMB Financial Corporation is a multi-bank holding company headquartered in Kansas City, Mo., offering complete banking and related financial services to both individual and business customers. Its banking subsidiaries own and operate 149 banking centers. UMB Bank has provided world-class custody and cash management services for more than 50 years. UMB Bank is the 6th largest mutual fund transfer agent and the 15th largest U.S. custody bank. UMB Bank administers over $1 billion in IRA account assets and provides custody services for an additional $4 billion.