Data & Research May 5, 2014

IRA Rollover Contributions Reach $321B

Individual retirement account (IRA) rollovers increased 7.3% during 2013 to reach $321.3 billion in total rolled-over assets, according to financial analytics firm Cerulli Associates.
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As in previous years, a significant portion of IRA contributions made during 2013 came in the form of one-time retirement account rollovers, explains Bing Waldert, a director at Cerulli (see “For IRAs, It’s All About the Rollover”). He says the firm’s latest research shows this growth pattern is likely to continue for some time as members of the Baby Boomer generation approach and enter retirement at a rapid rate. The IRA channel should also continue to benefit from a widespread lack of in-plan retirement income tools across the defined contribution (DC) investing marketplace, Waldert says.

In the “Retirement Markets 2013: Data & Dynamics of Employer-Sponsored Plans” report, Cerulli finds the IRA segment currently holds about 33% of all retirement-related assets in the U.S., making IRAs the most popular retirement savings vehicle overall. Private DC plans, by comparison, hold about 22% of all retirement-related assets, and public defined benefit (DB) pension plans hold nearly 24%. The remainder is split between public DC plans (8%) and private DBs (14%).

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Interestingly, Cerulli says many of the participant dollars rolling into IRAs today actually come from people who have been retired for multiple years. In other words, Cerulli finds participants do not necessarily roll over their assets immediately after leaving their employer. Instead, many wait months or even years before moving funds out of the DC plan environment—where they tend to benefit from access to better share classes and cheaper administration costs.

This suggests employers and plan officials may not be adequately preparing employees for the task of managing their finances post retirement, Cerulli says, forcing retirees to delay important financial decisions. The report advises plan providers to actively inform participants, well in advance of the retirement date, that IRA accounts are available through their existing provider. This will prevent asset leakage for the provider if the participant decides to roll over, Cerulli says, while also ensuring plan participants are well-informed on their retirement income options.

For advisers and broker/dealers, immediately connecting with separated participants is essential in protecting assets under advisement, Cerulli says, but it will also be important to follow pending Department of Labor (DOL) fiduciary rule changes that could restrict the way IRA rollover services are marketed to participants (see “Optimizing Your Practice to Capture Rollovers”).

More information on how to obtain Cerulli’s recent reports is available here.

The Markets May 5, 2014

Large Plans Fare Better During Q1

Small plans underperformed large plans for the first quarter of 2014, pulling the median return for all institutional assets tracked by the Wilshire Trust Universe Comparison Service (TUCS) to a lackluster 1.66%.
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“While this is the third positive quarter in a row, returns remain below the classic 1.82% or higher quarterly return target required for an annualized 7.5% return,” says Robert J. Waid, managing director, Wilshire Associates, based in Santa Monica, California.

Waid adds, “In a quarter where the Wilshire 5000 Total Market Index and Barclays U.S. Aggregate Index returns were similar, at 2.04% and 1.84%, respectively, it wasn’t surprising to see that overall plan returns were similar.” He notes that Taft-Harley health and welfare funds was the lowest performing plan type for the third quarter in a row with a median return of 1.26%. Foundations and endowments followed with a median return of 1.52%, while large corporate funds with assets greater than $1 billion delivered a high median return of 2.39%.

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“Whereas large plan median returns outperformed the classic 60/40 portfolio, their small plan counterparts underperformed,” says Waid. Corporate funds delivered the largest size spread, with medians return for small versus large corporate funds of 1.71% and 2.39%, respectively.

More information about the Wilshire TUCS plan returns versus the traditional 60/40 portfolio for first quarter 2014 can be found here.

Wilshire TUCS, a cooperative effort between Wilshire Analytics, the investment technology unit of Wilshire Associates Inc., and custodial organizations, is an accepted benchmark for the performance and allocation of institutional assets and includes nearly 1,700 plans representing in excess of $3.5 trillion in assets.

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