Employee Choice Arrangement: only accrued savings move; new contributions stay put

This article is a rewrite of a report from August 2012.

Under the Employee Choice Arrangement launching in November 2012, workers get one chance a year to move their employee-contribution savings to a trustee of their choice. But many misunderstood one point: only the money already accumulated moves; each month’s new contributions still flow into the employer’s original scheme.

What moves, and what doesn’t?

In other words, even if you move your employee contributions to a chosen account this November, December’s new contributions will still land in the original company account — to move again, you wait for 2013 and repeat the exercise.

Why can’t new contributions follow?

To spare employers administrative chaos. The MPFA explained the law does not explicitly forbid employees from asking employers to pay into a chosen account, but if every worker picked a different trustee, employers would have to pay into each account separately. The authority would watch market reaction after launch and review if needed.

How long does a transfer take? Any fees?

• Time: typically six to eight weeks. The original trustee must issue a cheque to the new trustee within 30 days of receiving the form; if the form has errors, it must notify the employee within 10 days — no stalling.
• Fees: trustees may not charge any handling fee. Some trustees flagged rising costs; whether that feeds into management fees remains to be seen.
• Current fees: average fund management fee around 1.73%; mixed-asset funds range from 0.18% to 4.62% — a huge spread.

The MPFA believed fees still had room to fall, with no floor set; the arrangement should spur competition and give employees more choice.