DC Participants Slow to Move Assets

This means the assets that remained in employer-sponsored plans are nearly twice as large as the amount of assets that rolled out last year, according to Chris Nadai, a senior analyst at Cerulli.

“The fact that a majority of assets eligible for distribution remain in-plan each year indicates that many 401(k) participants are hesitant to take action with their prior accounts,” Nadai adds. “This is a great opportunity for financial advisers and recordkeepers to inquire about [participants’] prior employment history in order to determine whether there are abandoned accounts.”

Cerulli claims the majority of money exiting employer-sponsored defined contribution plans rolled out to either an individual retirement account (IRA) or a new employer plan, and the rest was taken as a cash distribution to initiate an indirect rollover, satisfy a required minimum distribution (RMD) or for cash.

The research report from Cerulli, “Evolution of the Retirement Investor 2014: Understanding 401(k) Participant Behavior and Trends in IRAs, Rollovers and Retirement Income,” also examines retirement decisions made by individual investors throughout their retirement planning lifecycle, with particular emphasis on 401(k) plan participants. Cerulli says it expects that annual distributions and rollovers will increase from 401(k) participants over the next five years as increasingly large numbers of Baby Boomers reach retirement age.

Researchers suggest this represents a big opportunity for recordkeepers, brokerage firms and advisers. Establishing a relationship with retirement plan participants is essential for recordkeepers and IRA providers, Nadai continues. “One of the major advantages recordkeepers have in capturing rollovers is that they can be in immediate contact with a participant when there is a change in their work or personal life,” he adds.

Taking advantage of these trends will require advisers and service providers to shift away from a sole retirement planning focus and to direct additional attention to personalized financial planning as well. Many individuals are not exclusively concerned about retirement, Cerulli notes. Instead, they need advice about buying a house, reducing debt, saving for a child’s education and other financial issues. According to Cerulli, advisers and recordkeepers are in a position to be the main source of this advice, and can build significant rapport with clients, which may lead to the capturing of rollovers and distributions. 

The report also argues that recordkeepers and advisers can serve their clients well by working to keep assets within the 401(k) market—due to the competitive benefits of employer-sponsored plans over IRAs. Employer-sponsored plans often have access to better share classes than are available to individuals in an IRA, and there is usually more fiduciary support as well as other features that make keeping retirees’ money in-plan appealing.

For this reason, Cerulli urges advisers and recordkeepers to consider ways to bring sustainable income solutions to the employer-sponsored plan environment. Still, this will be challenging due to regulatory ambiguity, portability issues and the resistance of plan sponsors to take on potential fiduciary liability for participants’ lifetime income.

Information on how to obtain a full copy of Cerulli’s retirement asset rollover and distribution report is available here.