IRA Rollover Contributions Reach $321B

As in previous years, a significant portion of IRA contributions made during 2013 came in the form of one-time retirement account rollovers, explains Bing Waldert, a director at Cerulli (see “For IRAs, It’s All About the Rollover”). He says the firm’s latest research shows this growth pattern is likely to continue for some time as members of the Baby Boomer generation approach and enter retirement at a rapid rate. The IRA channel should also continue to benefit from a widespread lack of in-plan retirement income tools across the defined contribution (DC) investing marketplace, Waldert says.

In the “Retirement Markets 2013: Data & Dynamics of Employer-Sponsored Plans” report, Cerulli finds the IRA segment currently holds about 33% of all retirement-related assets in the U.S., making IRAs the most popular retirement savings vehicle overall. Private DC plans, by comparison, hold about 22% of all retirement-related assets, and public defined benefit (DB) pension plans hold nearly 24%. The remainder is split between public DC plans (8%) and private DBs (14%).

Interestingly, Cerulli says many of the participant dollars rolling into IRAs today actually come from people who have been retired for multiple years. In other words, Cerulli finds participants do not necessarily roll over their assets immediately after leaving their employer. Instead, many wait months or even years before moving funds out of the DC plan environment—where they tend to benefit from access to better share classes and cheaper administration costs.

This suggests employers and plan officials may not be adequately preparing employees for the task of managing their finances post retirement, Cerulli says, forcing retirees to delay important financial decisions. The report advises plan providers to actively inform participants, well in advance of the retirement date, that IRA accounts are available through their existing provider. This will prevent asset leakage for the provider if the participant decides to roll over, Cerulli says, while also ensuring plan participants are well-informed on their retirement income options.

For advisers and broker/dealers, immediately connecting with separated participants is essential in protecting assets under advisement, Cerulli says, but it will also be important to follow pending Department of Labor (DOL) fiduciary rule changes that could restrict the way IRA rollover services are marketed to participants (see “Optimizing Your Practice to Capture Rollovers”).

More information on how to obtain Cerulli’s recent reports is available here.