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Rolling over Assets to Individual Retirement Accounts Could Put Participants' Best Interests in Jeopardy

As a result of certain alleged, unscrupulous practices in the retirement industry, there is increasing scrutiny of and litigation regarding roll-overs of 401(k) and similar retirement accounts to individual retirement accounts ("IRAs") and similar vehicles. Moving funds from a 401(k) or other retirement fund into an IRA can appear enticing for some plan participants due to increased investment options and vehicles available - beyond those typically offered by fiduciary plan sponsors. The amount of assets and investment options in IRAs equal $5.4 trillion, as compared to $5.2 trillion in the defined contribution retirement market (inclusive of 401(k) investments), see ira-fees-higher-than-401ks-consider-taking-control/ (general discussion of IRA fees vs. 401(k) fees) - so, to put it mildly, the IRA market can be a lucrative one for brokers, registered investment advisors, other plan advisors and service providers to target as participants consider rolling over 401(k) funds to IRAs as they near or attain retirement age. The problem, according to SFMS Patrner, James E. Miller ([email protected]), is that many individuals and entities "assisting" participants in the roll-over process appear to be acting principally in their own interest and, at times, against the participants' best interests.

As Ronald S. Kravitz of SFMS ([email protected]) explains, the Department of labor ("DOL") is increasingly scrutinizing practices in the retirement industry with respect to roll-overs of 401(k) and similar funds to IRAs and related investment vehicles.;; (all discussing the same). In addition, Mr. Kravitz has discovered that the Financial Industry Regulatory Authority ("FINRA") and the Securities Exchange Commission ("SEC") are increasingly scrutinizing practices by brokers and others with respect to the roll-over of retirement funds to self-directed IRAs and similar instruments. See (discussing FINRA's focus on IRA roll-overs generally); (discussing FINRA and SEC review of roll-overs).

In addition, the U.S. Tax Court decision in Peek v. Commissioner, 140 T.C. No. 12, (May 9, 2013), illustrates the potential problems with using self-directed IRAs from a tax perspective - another potential pitfall about which participants should be mindful.

The DOL "has recognized the 'potential for abuse' when Advisors cross-sell their Rollover IRA Services to an existing Plan client's participants. And it has made specific references to this problem from a policy standpoint in various releases and preambles to its regulations."

The roll-over area is likely to become a major area of litigation and regulatory enforcement in the near future. The team at SFMS has significant experience handling ERISA, FINRA and securities issues related to IRA roll-overs. If you have any questions regarding this subject or this article, please contact James E. Miller ([email protected]), Ronald S. Kravitz ([email protected]) or Michael Ols ([email protected]). We can also be reached toll-free at (866) 540-5505.

Shepherd Finkelman Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS also maintains an affiliate office in London, England, and is an active member of Integrated Advisory Group ( For more information about our firm, please visit us at

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