WASHINGTON (UPI) — Money management firms often provide misleading information to employees on how to handle their retirement savings when they switch jobs, a federal report said.
The Government Accountability Office’s report released Wednesday said workers often are urged to roll their retirement savings into an individual retirement account when they leave a job, even though it would be better to keep the money in a 401(k) account.
Having workers shift their funds into IRAs usually allows money management companies to reap larger fees for handling the retirement money, the report said.
“The financial services industry spends substantial time and effort into marketing IRAs that may not be in the best interests of account holders,” Rep. George Miller, D-Calif., told The Washington Post “This comes as no surprise, since IRAs often come with higher costs when compared to a 401(k).”
The GAO said it had undercover investigators call 30 money management firms posing as workers about to change jobs to learn how the firms marketed their services. In seven instances, the “employees” were provided incorrect information, including that transferring their money into an IRA would be free, even though ongoing fees would be incurred by opening the accounts.
The GAO also reviewed the Web sites of 10 large firms, finding five incorrectly said their IRAs were free, the Post said.
“Saving for retirement is tough enough, so it’s terrible when employees lose hard-earned money to misleading sales pitches, harmful products or just poor investment advice,” Sen. Bill Nelson, D-Fla., chairman of the Senate Special Committee on Aging, told the Post.
When someone leaves a company, there generally are four choices available for handling 401(k)s: leave the money in the former employer’s plan, move it to the new employer’s plan, put it in an IRA, or withdraw it and use it for current expenses, which incurs a tax penalty if the employee is younger than 59 1/2 when the retirement funds are withdrawn.
The GAO report said the options may be confusing to workers, making them vulnerable to misinformation they may receive from companies handling their accounts.