Last spring, I got engaged to my now-fiancée in Israel. Before I popped the question, she was the passenger in an ATV, enduring hairpin turns at 70 miles per hour, along sheer cliffs in the Gilboa Mountains. Then she rappelled hundreds of feet off of said cliffs, where I finally greeted her with the ring. When we were back in the ATV, traversing those same hairpins, but this time at considerably slower speeds, she turned to me with an ear-to-ear grin and said, "now that we're engaged, what's yours is mine." At the time I thought, 'congrats, this dust-soaked t-shirt is all yours.'

What she really meant, is that after all of these years, it's now time for our lives to formally blend. When I read a recent Wall Street Journal article by Daisy Maxey about Pennsylvania reforming its rules on abandoned retirement accounts, I had a flashback to the first moments of our engagement: 'what's yours is mine.' I found myself repeating this quote, paragraph by paragraph, as I progressed through the article. By the end, I couldn't help but laugh at the sense of irony. In one context, 'what's yours is mine', marks the beginning of a new chapter. It's something to celebrate and cherish. In the other context, it's a sardonic take on one state's alleged attempt to protect investors from eroding their retirement account balances, while conveniently chipping away at the state budget deficit. 

The new law took effect on September 10, 2016 and amended Pennsylvania's procedure for handling retirement accounts that are deemed to be abandoned in 2017. Historically, a retirement account was considered abandoned if two criteria were met: the account had no activity for the prior 3 consecutive years and the account owner was older than age 70½. Under the new revisions, an account owner does not have to satisfy the age 70½ criteria for the three-year clock to begin. You may have assumed correctly that upon reading this fact, 'what's yours is mine' first chimed in my head. 

For one moment, I'll digress. An account is transferred to Pennsylvania's Treasury Department and labeled abandoned after the owner has neglected the account and cannot be contacted by the institution that custodies that account for three years. Moreover, the definition of neglect in this context, is reasonable: the owner has not increased or decreased the principal in the account; begun receiving distributions; received payment or principal or income or otherwise indicated an interest in the account. To not satisfy any of these criteria and be unreachable for three years would lead any competent institution to assume the account is in fact abandoned. 

In the past, accounts deemed abandoned were liquidated when the owner turned age 70½ for a very specific reason: Required Minimum Distributions. (RMD) An RMD is an amount the federal government determines that must be withdrawn annually from your retirement accounts, based on a schedule correlating with your age, beginning when you’re 70½. The penalty for not satisfying your RMD is 50% of the amount not withdrawn, below the RMD. In this context, it makes perfect sense that the state would want to protect owners from this penalty. However, by removing the age 70½ requirement, younger investors are now in jeopardy of sacrificed returns, if they follow good advice too well; they set it and forget it. 

Here's the problem: retirement accounts (or any investment account) with only cash will not typically grow in value. Of course, investments are not guaranteed to grow either, but beyond a shadow of a doubt, an account invested in mutual funds is likely to have a stronger opportunity for growth over a 10-year period, for example, than cash. Moreover, the Department of Labor's new reforms stipulate that retirement plans cannot have excessive fees that historically, have eroded returns and, by extension, balances. What this means is that Pennsylvania is jeopardizing the retirement of their citizens for what's characteristically, an honest mistake. 

Does the blame fall on an account owner, when his or her account is deemed abandoned? Absolutely. Should that account owner be penalized for a mistake made thousands of times every year, across the country? Absolutely not. In this instance, the punishment does not fit the crime and the consequences are by all sense of reason, irreversible. While our disagreement with the revisions will likely fall on the deaf ears of Pennsylvania's policymakers, we write this as a note of caution to our clients and friends. You can avoid this situation all together, if you simply tend to accounts that may not be top of mind, like your retirement plans at former employers. By rolling over old 401(k)’s, for example, into an IRA, you are able to better protect yourself from Pennsylvania saying to you, "what's yours is mine."