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Data & Research March 6, 2014
Do Your Clients Have ‘Orphan’ Accounts?
A new analysis from the LIMRA Secure Retirement Institute shows many older workers have balances left in old employers’ retirement plans that may not be receiving adequate attention.
Reported by John Manganaro
LIMRA, which provides financial industry research and consulting services, says in a recent blog post that it’s completed a study showing the majority of working Americans age 45 to 75 with more than $100,000 in household assets report having balances left in a former employers’ defined contribution (DC) retirement plan—creating a large number of “orphan” accounts that may not be receiving proper attention and maintenance.
More significant, LIMRA says, is the fact that about two-thirds of those ages 55 to 75 with these orphan accounts had DC plan balances of $100,000 or more. That’s potentially problematic because traditional glide path strategies urge workers in this age range to take action to ramp down equity exposures to protect from market declines that could diminish assets needed in the near future—something that presumably doesn’t happen in most orphan accounts.
For plan sponsors and advisers, orphan accounts can add to the complexity of managing assets and may damage overall plan outcomes by failing to account for participants’ current age and financial situation in setting investment strategies, LIMRA explains.
The firm’s research shows men and women of all ages are equally likely to have a DC plan balance with a former employer (41% vs. 40%). The study finds Americans with household assets of at least $500,000 are more likely to have an orphan account (44%) than those with less than $500,000 (38%).
Taking those facts into account, LIMRA urges advisers to develop a comprehensive written plan for managing all assets a worker has accumulated—including those dollars in retirement accounts at a former employer. Prior LIMRA research shows that pre-retirees and retirees are more confident in their retirement security when they have a written retirement plan in place and are more likely to take action on setting age-appropriate asset allocations.
In addition, LIMRA says advisers should help their clients account for all of their assets to ensure retirement portfolios are well-designed and invested based on a total picture of an individual’s financial needs and resources.
Further information on LIMRA is available here.