Data & Research March 14, 2019

Few Retirees Keep Assets in Their DC Plan

Participants who were age 60 or older when they retired were more likely to keep assets in the plan if it permitted installment payments, according to Alight Solutions.

Reported by

Citing MetLife’s Lifetime Income Poll, Alight Solutions says that in 2012, only 9% of employers agreed with the statement, “The sole purpose of the DC [defined contribution] plan is to serve as a source of retirement income.” By 2016, this had jumped to 85% of employers.

This prompted Alight Solutions to study what workers do with their assets once they retire. Among participants who terminated in the past 10 years, 40% of assets remained in the plan as of year-end 2017, but because people with smaller balances were more likely to cash out, only 26% of people who terminated in the past 10 years remained in the plan as of the end of 2017. Forty percent cashed out, 8% did a combination of the two and 26% rolled their money into an IRA.

Participants who were age 60 or older when they retired were more likely to keep assets in the plan if it permitted installment payments. Alight Solutions’ recordkeeping platform had higher asset retention than other recordkeepers, with only 10% of people on its platform rolling their money over to an individual retirement account (IRA) versus 25% across the industry. Alight attributes this to its not offering IRAs.

Alight also says the IRA rollover market is highly competitive and crowded. Thus, no single IRA provider received a large percentage of rollovers. Alight says 5,000 different IRA providers have received IRA rollovers in the past 10 years.

Alight says employers carefully monitor how money leaves their DC plan for several reasons, the first being concern that a 401(k) recordkeeper could prompt participants to roll over their assets from the low-cost DC plan, subject to fiduciary duties, into a higher-cost IRA. Employers are also keenly aware that if they retain retirees’ assets, the size of the plan is higher and, thus, they have more bargaining power with respect to service providers’ fees.

Employers also know that workers who retire from their company with DC balances would be better served with lower fees and the protection of being invested in a plan subject to the Employee Retirement Income Security Act (ERISA), Alight says.

In terms of the assets of individuals who terminated between 2008 and 2017, as of year-end 2017, 40% of assets remained in the plan, 15% were cashed out and 45% were rolled over.

“The discrepancy between the headcount and the asset weighting arises from two primary facts,” Alight says in its report, “What do workers do with their savings after they leave their employers?”

“First, people with small balances were more likely to cash out their benefits than people with large balances,” Alight says. “Eighty percent of people with balances of less than $1,000 cashed out their entire balances, compared to only 2% of people with balances of $250,000 or more. Second, there are many more people with small balances than large ones. Individuals with balances of $1,000 or less outnumbered those with balances of $250,000 or more by a factor of more than three to one.”

In the past decade, within a year of termination, 55% to 60% of people took a withdrawal, either through a cash-out or a rollover. In the following year, another 15% took action. “Assets leaving the plan followed a similar pattern,” Alight says. “Most of the withdrawals took place within the first few years following termination, but slowed down and leveled off after about five years.”

Overall, there was a higher percentage of withdrawals among people who terminated employment after reaching age 60 than other age groups, Alight says. Thirty-eight percent of people who terminated after reaching age 60 and who had a balance of at least $250,000 kept their money in the plan when installments were offered. When installments were not offered, only 28% of people kept their money in the plan.

Alight says that in 2017, two-thirds of plans offered installment withdrawals up from 51% in 2007. However, only 3% to 6% of people who terminated after age 60 chose an installment payment. Cash distributions and withdrawals are much more common.

Alight recommends that employers monitor how much money from their plans goes into IRA, and that they educate participants about their retirement plan choices, particularly discouraging younger workers who leave for other jobs from cashing out. Finally, Alight says employers should begin to embrace lifetime income options, starting with installment payments.

Alight’s full report can be downloaded here.
Client Service March 14, 2019

End-of-Life Planning Outstrips Retirement Care Planning Among Baby Boomers

Two-thirds of middle-income Boomers know someone who has required retirement caregiving, either in their home or in a nursing home, yet few Boomers are taking action to plan for this likelihood.

Reported by

A new white paper published by the Bankers Life Center for a Secure Retirement, “A Growing Urgency: Retirement Care Realities for Middle-Income Boomers,” makes the startling case that today’s Baby Boomers “are more financially prepared for death than life.”

The white paper is based on a survey conducted by in October 2018 by the Blackstone Group. The Internet-based survey consisted of a representative nationwide sample of 1,500 middle-income Baby Boomers—defined as those with an annual household income between $30,000 and $100,000 and having less than $1 million in investable assets. In 2018, Baby Boomers were 54 to 72 years old.

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According to the survey analysis, for more than half (56%) of middle-income Boomers, the primary retirement concern is staying healthy enough to enjoy life after work. The white paper notes that this is a sensible goal, but it belies the challenging financial picture middle-income Boomers face in retirement. Notably, half (50%) of middle-income Boomers have less than $5,000 in savings set aside for a financial emergency. At the same time, nearly four in five (79%) middle-income Boomers have no money set aside specifically for their retirement health care or long-term care needs.

The white paper suggests Baby Boomers are worried about these facts and are hungry for education, advice and solutions that can ease the burden of preparing for long-term care and retirement health care expenses. Among those middle-income Boomers without a retirement care plan, one-third (32%) say they need advice, but do not know who to trust.

“Two-thirds (67%) of middle-income Boomers know someone who has required retirement care, either in their home or in a nursing home,” the white paper warns. “And about half (45%) of middle-income Boomers currently have experience as a caregiver.”

Among Boomers who have caregiving experience, the survey shows they typically have cared for an immediate family member. Of middle-income Boomers who are currently a caregiver or have been one in the past, about two-thirds (68%) cared for their mother or father. One in five (17%) cared for a mother- or father-in-law, according to the white paper, and another one in five (17%) cared for a spouse or partner.

More prepared for death than life?

While only about three in 10 middle-income Baby Boomers have mapped out plans for how they will access and pay for caregiving during retirement, eight in 10 have made at least one formal preparation for when they die. This is why the paper argues Boomers are “more financially prepared for death than life.”

The white paper argues this problem will persist for some time, as fewer than one in five (18%) middle-income Boomers said that retirement care planning is a high or very high priority. Twice as many (40%) said it is a low priority or not a priority.

“Although Medicare does not cover ongoing long-term care needs, more than half of middle-income Boomers mistakenly expect to use Medicare to pay for care should they need it,” the paper warns. “Many middle-income Boomers are unaware of the fundamental facts about Medicare and paying for retirement care. One in six (16%) do not know or are unsure how they would pay for retirement care. Somewhat encouragingly, two in five (40%) middle-income Boomers now expect to use personal savings to pay for care—an increase of 15 points over 2013.”

According to the survey, about one in 10 (12%) middle-income Boomers have purchased long-term care insurance, while more than one third (37%) say they are unfamiliar with the product. Among middle-income Boomers without such insurance, more than half (56%) said they felt it was too expensive.

Among middle-income Boomers who have a formal retirement care plan in place, they are primarily motivated by personal responsibility (31%) and to minimize future burdens on loved ones (31%).

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