Employers who want to keep retirees' assets within their company-sponsored retirement plans need to reach out to people personally, according to a new LIMRA study. The study found that retirees and pre-retirees who were proactively contacted by their retirement plan providers around the time they leave their employer are twice as likely to keep their retirement plan assets with the plan provider.
"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 for 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."
Personal contact works much better than mailed appeals, the study found. Contact methods such as phone, in-person or any other way that allows for personal two-way communication are much preferred to passive methods such as mail or email. The report recommended that plan providers expand their call center staff rather than expand the program's mailing budget to more effectively reach out and retain plan participants.
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The LIMRA study also found that just because someone decides to keep their assets in their former employer's plan doesn't mean they won't change their mind in the future and roll their assets over to an IRA. The study found that half of stay-in-plan participants were not committed to remaining in the plan and nearly 20 percent said they had not considered their alternatives yet. Only 24 percent of retirees and 15 percent of pre-retirees who cashed or rolled their money out of the plan invested the money with the same plan provider. 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:
- 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, nonprofit 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 percent of assets were retained in plan and committed as compared to private sector workers at small companies (under 100 employees), where only 14 percent of assets were retained and committed. Among former private-sector workers, in-plan retention improves with increased employer size.
- 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.
- Individuals with financial advisors/planners are less likely to keep their assets with the provider of the employer-sponsored plan. LIMRA recommends plan providers offer consultations with an affiliated financial professional, which, when used by a participant, improved the amount of retained and committed assets compared to those who used an independent advisor.
"Time is of the essence," said Drinkwater. "As we have seen in prior studies, half of all assets represented by those surveyed were distributed within 12 months. It is critical to engage retirees and terminated pre-retirees as early as possible to have a chance of retaining their assets."
The LIMRA study was conducted in the spring of 2011 and encompassed 1,170 retirees and pre-retirees aged 55 to 70 who terminated with their employer over the last three years, were involved in making financial decisions for their household and had at least $10,000 in their defined contribution plan accounts as of the time of retirement/termination.
LIMRA is a worldwide research, consulting and professional development organization that helps more than 850 insurance and financial services companies in 73 countries increase their marketing and distribution effectiveness.
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