Pontera Says Rollover Not Always Superior to 401(k)

New findings from Pontera reveal that 59% of advisers made the decision not to roll over their clients’ 401(k) into an IRA or other account in 2022, due to better benefits offered by the existing retirement plans and advisers’ ability to effectively manage the assets within those plans.

From 2016 to 2021, $2.9 trillion of IRA asset growth was from rollovers of retirement plan accounts. It is estimated that more than half of this amount was facilitated by financial advisers, according to software provider Pontera’s 2023 Financial Advisory Survey with data drawn from 124 advisers managing billions of client assets.

Pontera said many investors mistakenly believe that a rollover is required, but they are not and can be quite costly. Retirement savers can lose out on numerous advantages associated with 401(k) plans by rolling over their assets, including access to lower fees and institutional funds, tax benefits linked to employer stock, creditor protections, and the availability of loan options.

“We are proud to see that the majority of Pontera advisor partners have concluded that it was in their clients’ best interest to keep assets in plan instead of rolling them over,” said Yoav Zurel, Pontera’s CEO, said in a statement. “This finding shows that our partners are employing their fiduciary duty in the face of an excessive rollover trend, costing Americans billions of dollars each year.”

Pew Charitable Trusts’ research estimates that retail investors could lose $45.5 billion over the next 25 years due to higher fees alone, out of the $516.7 billion in IRA rollovers from plan accounts in 2018.

A recent report from Cerulli Associates’ aligns with Pontera’s findings. Recent years have seen an increased focus on retirement income initiatives within 401(k) and other defined contribution plans, according to Cerulli’s June 2023 issue of The Cerulli Edge—U.S. Monthly Product Trends.

Among asset managers’ plan sponsor clients, 58% now actively seek to retain participant assets post-retirement, or prefer to do so, according to a 2022 Cerulli survey of DC plan consultants. The survey included both retirement-focused registered investment adviser aggregator firms and institutional consultants.