Why Retirement Plan Sponsors should let Former Employees take their Money and “Roll”

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I often joke that the worst thing that could happen to my own law practice is when I have to hire my first employee. While it’s inevitable that I will have to make my first hire, my trepidation is not just focused on the money, it’s the fact that I was an employee once too. Whether you are an owner or an employee, you must realize that most employees aren’t the happiest of campers because almost all are never satisfied with their salary (like good capitalists, they always want more) and a good chunk think they can do a better job than their bosses. Some like me start their own business or change employment, while most just complain and sulk. While managing employees is tough, it’s even tougher to handle former employees. While many employee-employer relationships end amicably, many do not. Too many employers make mistakes in the handling of their employees and get sued on discrimination and/or contractual grounds. That is why employers as plan sponsors need to minimize their liability in how they handle their retirement plan(s), especially when dealing with former employees. Retirement plan sponsors need to make sure former participants take their retirement plan money with them because maintaining the assets of aggrieved former employees is a recipe for disaster.

This article is intended to advise retirement plan sponsors on how they can use the distribution and rollover rules of retirement plans to their advantage and to minimize their liability risk as retirement plan sponsors.

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