RobertPowell

Breaking news: During his State of the Union speech tonight, President Obama is expected to announce he will seek to launch a plan that would allow workers whose employers don’t offer retirement plans to invest money for retirement, tax deferred, in Treasury bonds; the employees could eventually convert those savings to traditional IRAs. Read more in our Encore blog .

It’s not quite lambs to slaughter, but it might as well be.

In 2012, about 3 million American workers rolled over some $289 billion from their employer-sponsored retirement plans into an IRA or into their new employer’s retirement plan, according to Cerulli Associates, a Boston-based research firm.

The bulk of that money — $ 204 billion, with an average account balance of $128,400 — went into IRAs controlled by financial advisers.

Next, about $85 billion, with an average account balance of $53,900, went into a self-directed IRAs. And the balance, $1 billion with an average account balance $91,000, was rolled into a new employer’s plan, according to Cerulli Associates.

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Some rollovers are a thrill, others are a mistake.

And when it comes to IRAs, we are not talking small potatoes: IRAs accounted for about 28% of all U.S. retirement assets, which totaled $19.5 trillion at the end of 2012. And for the record, this market is only going to get bigger. By 2017, Americans will roll an estimated $451 billion into IRAs, making this an $8 trillion marketplace, according to Cerulli Associates.

Given that amount of money, and all that could wrong, the nation’s top regulators and watchdogs, including the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (Finra), the Labor Department, and even the Government Accountability Office (GAO), are putting financial firms and advisers on notice: Do right by retirement savers with their IRA rollovers.

Participants generally have four options when leaving their employer-sponsored plan:

• They can leave the money in the former employer’s plan, if permitted;
• Roll over the assets to a new employer’s plan, if one is available and rollovers are permitted;
• Roll over the assets into an IRA;
• or cash out the account value.

Deciding what to do isn’t easy. What’s more, the decision is made even more difficult when the very people from whom one might seek counsel provide misleading or inaccurate or conflicted advice.

GAO finds room for improvement with IRA rollovers

Consider: In its study, released last March, the GAO found that “plan participants often receive guidance and marketing favoring IRAs when seeking assistance regarding what to do with their 401(k) plan savings when they separate from their employers.”

The GAO also found that service providers’ call center representatives encouraged rolling 401(k) plan savings into an IRA even with only minimal knowledge of a caller’s financial situation. “Participants may also interpret information about their plans’ service providers’ retail investment products contained in their plans’ educational materials as suggestions to choose those products,” the GAO wrote in its report.

What’s more, the Labor Dept.’s current requirements do not sufficiently assist participants in understanding the financial interests that service providers may have in participants’ distribution and investment decisions, the GAO said.

And, the GAO wrote at the time, 401(k) plan participants separating from their employers may find it difficult to understand and compare all their distribution options. “Information participants currently receive is either too generic and without detail, leaving participants without understanding of the key factors they need to know to make decisions about their savings, or too long and technical, leaving participants overwhelmed and confused,” the GAO wrote.

And if all that wasn’t bad enough, the GAO wrote at the time that the Labor Dept.’s regulations do not ensure that 401(k) plans provide complete and timely information to participants on all their distribution options.

What’s needed, the GAO wrote, is this: The Labor Department and IRS should take certain steps to reduce obstacles and disincentives to plan-to-plan rollovers. And, the Labor Dept. should also ensure that participants receive complete and timely information, including enhanced disclosures, about the distribution options for their 401(k) plan savings when separating from an employer. Read 401(k) Plans: Labor and IRS Could Improve the Rollover Process for Participants .

Finra warns brokers about IRA rollovers

Fast forward to last month: Finra reminded the firms it regulates about their responsibilities when 1) recommending a rollover or transfer of assets in an employer-sponsored retirement plan to an IRA or 2) marketing IRAs and associated services.

In short, the Finra warned financial professionals against persuading clients to roll over balances from employer-sponsored retirement accounts into IRAs if the client would receive a greater benefit from leaving the money where it is.

“Firms should emphasize that performance of the suitability responsibilities of a broker-dealer or registered representatives should never be compromised by their financial interest in recommending an IRA rollover or another action,” Finra said in a regulatory notice. Read Rollovers to Individual Retirement Accounts .

In its notice, the Finra said an adviser’s “recommendation to roll over plan assets to an IRA rather than keeping assets in a previous employer’s plan or rolling over to a new employer’s plan should reflect consideration of various factors, the importance of which will depend on an investor’s individual needs and circumstances.” And some of the factors include investment options, fees and expenses, services, penalty-free withdrawals, protection from creditors and legal judgments, and required minimum distributions, and employer stock.

What’s more, the Finra noted that brokerage firms must make sure that “conflicts of interest do not impair the judgment of a registered representative or another associated person about what is in the customer’s interest and that they neither confuse investors nor interfere with important educational efforts.” According to the Finra, firms and their registered representatives that recommend an investor roll over plan assets to an IRA may earn commissions or other fees as a result. In contrast, a recommendation that an investor leave his plan assets with his old employer or roll the assets to a plan sponsored by a new employer likely results in little or no compensation for a firm or a registered representative.

And, the Finra said brokerage firms must ensure that a registered representative who recommends a rollover to an IRA has been properly trained concerning retirement savings options and the tax, investment and other implications of the decision.

SEC to crack down on IRA rollovers too