What should your financial advisers consider and document when recommending whether a 401(k) rollover is in your best interest? Here are a few relevant factors they should include but not be limited to, according to the Labor Department.
Read: Should I roll over my 401 when I get a new job?But if you decide to roll it over to an IRA and work with an adviser know this: The brokers, insurance agents, registered investment advisers and others of that ilk who provide “advice and recommendations” for IRA rollovers must comply with a long — and we do mean long — list of duties imposed upon them by the Department of Labor’s Fiduciary Rule 3.0.
The PTE 2020-02, according to the Retirement Learning Center, allows financial advisers and financial institutions that give investment advice to retirement investors to be paid for their services without engaging in what’s referred to as a prohibited transaction under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code .
And, when considering the alternatives to a rollover, the Labor Department notes in its FAQ on the subject that “financial institution and investment professional generally should not focus solely on the retirement investor’s existing investment allocation, without any consideration of other investment options in the plan.”
This, by the way, is where you come in. In addition to obtaining your plan’s documents, auditor’s report and Form 5500, your adviser will need your 401 plan’s fee disclosure notice, the 404a-5, which shows your in-plan fees. Your adviser will use your 404a-b to contrast your 401 fees “to the IRA fee environment ,” according to the Retirement Learning Center.
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