PSNC 2017: Working With Departed and Retired Participants

Early in the 2017 PLANSPONSOR National Conference panel, “Working With Departed and Retired Participants,” a live polling question found equal amounts of plan sponsors are maintaining, neglecting or deciding whether to keep terminated and/or retirement participants’ assets in their plan.

Among plan sponsors, 29% are preserving these assets, while an additional 29% are not. Another 29% answered they “don’t know,” while the remaining percent voted it “depends on asset amount.” 

William Beardsley, senior vice president of LPL Financial, mentioned that for most terminated and/or retired participants, they choose to stay in the plan. Keeping assets in the plan can help plan sponsors with economies of scale to get lower administrative fees. On the other hand, some employees decide taking their assets to a new employer or an individual retirement account (IRA) is the best decision.

“It really is up to that individual employee,” Beardsley said. “They should get good guidance and assistance from a third-party.”

Jean Roma, director of US Retirement and International Benefits at Citi, agreed with Beardsley, and mentioned how participants who understand their actions won’t face troubles regarding retirement assets. 

“As long as people know what they’re doing, they’ve looked at fees and options with how they’re going to rollover, then that’s fine,” she said.

 NEXT: Plan design resources to implement 

To help participants draw down assets, Roma urged plan sponsors to consider incorporating a lifetime income solution, a guaranteed minimum withdrawal benefit (GMWB) or solution for purchasing an annuity at retirement to provide a steady income stream for retirees fearful of running out of assets in retirement. Additionally, Roma mentioned how this plan design option can help plan sponsors with fiduciary responsibilities to those with assets in the plan. 

“Instead of a true guarantee, [a GMWB is] more about managing the account for the participant,” she said. “It’ll change the mix of equities and bonds to make sure that while it’s not a true investment guarantee, it is signed off and participants can trust it.”

While incorporating a lifetime income solution can calm the nerves of some preparing for stable retirement savings, Beardsley recommended calling in professionals. Utilizing recordkeepers, such as a 3(16) fiduciary, he said, adds an extra layer of retirement readiness for participants. “Recordkeepers have the capability to show, this is what a lifetime income can look like,” he said.

However, Beardsley said, saving is always tougher for the lower-income workers—those cashing out less than $100,000 balances. That’s why, the panelists said, the Department of Labor (DOL) introduced the Lifetime Income Disclosure Act. Under this legislation, presented by the Senate and the House of Representatives in April to Congress, employer-sponsored retirement plans would be mandated to provide participants with monthly income estimates during retirement, should workers choose to purchase annuities. If passed, employers may consider implementing this to downsize the risk of running out of retirement income for retirees.