While few could argue the retirement planning industry has
not made tremendous strides in getting people involved in regular savings, fewer
advances have been made in helping individuals transition between jobs or into
retirement, according to a white paper from DST Systems.
The white paper argues there is clearly a need for greater availability
of advice and product in this area, yet providers also feel limited in terms of what they can offer.
“Participants need simplified services to facilitate the
transition between plans or to rollover individual retirement accounts (IRAs),”
researchers argue. “They need continued follow-up to ensure assets are
allocated to meet retirement goals.”
According to DST Systems, recordkeeper and plan sponsor
support is essential during critical transition events that will inevitably
come up during the typical plan participant’s working lifetime. These events include an anticipated or unanticipated job loss, a death or disability in the family, new relationships, the transition to retirement, etc.
“Participants who become eligible for distributions from
their retirement plans face numerous complicated choices—choices they are often
ill equipped to make on their own,” the report explains. “The rollover process
is often complicated, time intensive, and inefficient—resulting in bad
decisions and worse outcomes.”
DST argues the distribution/rollover decision is the point
where participants are perhaps the most vulnerable. In fact, approximately 5%
of participants make the decision to cash out their plan balances when leaving
a former employer—concentrated among those with smaller balances. This state of
affairs “illustrates a need for more participant education about the value of
staying invested in the market and of compounding growth of even small
investments over the long term.”
The report goes on to suggest that, during life-change
events, getting the rollover decision right is of vast importance for
participants’ long-term outcomes.
“The choices participants make have long-term implications
on their retirement savings … For instance, participants could face potentially
serious tax issues if the disbursement of their retirement plan money is handled
incorrectly,” the report warns. “Or, they could move their retirement assets into
investments that are inappropriate for their risk profile and long-term goals.
Others may utilize less effective and more expensive retirement vendors,
accounts, or investment products which could dampen over the long term.”
The current structure of the rollover process does little to
minimize or mitigate these concerns, the DST research concludes. In fact, the existing
“hands-off” rollover model “creates a void of support during a critical
moment of need … Where there should be simplicity and ease-of-use, there is
The report urges providers to commit to innovation in this
“It is largely a manual process that is paper intensive and
rarely streamlined,” the report concludes. “Recordkeepers, plan providers, and
plan sponsors could lead this change to help improve the rollover and roll-in
The full white paper can be downloaded here.