Annual IRA Rollovers to Surpass $450B by 2017

Annual IRA rollover contributions are expected to reach $451 billion in 2017, according to research from Boston-based global analytics firm Cerulli Associates, titled “Evolution of the Retirement Investor 2012: Understanding 401(k) Participant Dynamics, and Trends in Rollover and Retirement Income.”

Rollover opportunities are increasing as Baby Boomers have started reaching retirement age, said Alessandra Hobler, senior analyst at Cerulli. “Rollovers into individual retirement plans (IRAs) from defined contribution (DC) plans were at $315.7 billion as of year-end 2012, and we expect that number to reach $450 billion in 2017,” Hobler said.

The report analyzes current 401(k) plan participant behavior, including insight into the key pre-retiree demographic, and provides an in-depth perspective into the factors affecting rollover transactions.

Some highlights of the study are:

• Assets in 401(k) plans totaled $3.1 trillion in 2011, representing a significant opportunity for asset managers and other providers.
• In the majority of cases, the rollover goes to an existing relationship. Providers should be less focused on the current opportunity and try to project the benefits of a long-term relationship.
• IRA assets reached nearly $5 trillion by the end of 2011 and rollover contributions were more than $300 billion. Both of these totals will increase over the next five years as Baby Boomers enter retirement.

“The assets in employer-sponsored DC plans need to meet income needs for these individuals,” Hobler said. “Providers need to position themselves as the best choice for retirees who will rely on these assets alone. In many cases, a rollover presents an opportunity for asset managers to capture additional assets.”

The growing opportunity in IRA rollovers should be a key component of financial services firms’ strategies over the next five years, Cerulli believes. Engaging plan participants has been a challenge for many years; it can be difficult to reach rollover prospects. Providers seeking rollover assets need to target their firm’s investor profile. One-size-fits-all messaging may result in missed opportunities.

 More information on the report including how to purchase a copy is at Cerulli’s website.