LIMRA found that retirees and pre-retirees that are in contact with their plan provider are twice as likely to keep their retirement plan assets with that provider when changing employers or at the point of retirement.
The study found that “active” contact methods (e.g., phone, in-person contact) that allow for personal two-way communication are more effective than “passive” methods such as postal mail or e-mail.
While initial retention is important to plan providers, it doesn’t eliminate the risk of participants deciding to roll over their balances at any time. In fact, the study found that half of stay-in-plan participants were not committed to remaining in the plan and nearly 20% said they had not considered their alternatives yet. Furthermore, only 24% of retirees and 15% of pre-retirees who cashed or rolled their money out of the plan invested the money with that same plan provider. The study found, mutual funds are the most commonly selected destination for rollover assets, especially among higher-balance participants.
There are other factors that can play into whether a participant remains in their plan. According to the study findings, retirees and pre-retirees who have contributed to their DC plans for 20 years or more are significantly more likely than others to leave the money in the plan and remain committed to doing so. Most of these long-tenured individuals have stronger relationships with both the employer and plan provider.
Former employees of education, non-profit and public-sector employers are significantly more likely than former employees of private-sector employers to leave their money in the plan. For example, among public sector workers, 50% of assets were retained in plan and committed as compared to private sector workers at small companies (under 100 employees), where only 14% of assets were retained and committed. Among former private-sector workers, in-plan retention improves with increased employer size.
The study found individuals who left money in the plan but are not committed to keeping it there, or have rolled their money out, had lower satisfaction levels with the plan provider than those who rolled to retail products or are committed to remaining in the plan. Plan providers that contact participants frequently and establish a positive relationship are more likely to develop a higher satisfaction rate and therefore retain more assets.
In addition, individuals with financial advisers/planners are less likely to keep their assets with the provider of the employer-sponsored plan.
“With more than $400 billion per year rolling out of employer-sponsored retirement plans and into IRAs, plan providers are looking for ways to keep these assets under management,” said Matthew Drinkwater, associate managing director, LIMRA Retirement Research. “Our study found participants who are contacted around the time that they retire or leave their employer were much more likely to retain their money in their employer-sponsored plan account.”
The survey was conducted in the spring of 2011, and included 1,170 retirees and pre-retirees (ages 55-70) who terminated with their employer over the last three years, were involved in making financial decisions for the household and had at least $10,000 in their DC plan accounts as of the time of retirement/termination.