More than 40 years after passage of the Employee Retirement Income Security Act, the plan portability lawmakers envisioned for workers has been hampered by roll-in processes perceived as confusing by an increasingly mobile workforce.
That means too many participants are unnecessarily cashing out 401(k) assets when they change jobs, leaving valuable retirement money on the table, according to a study of participant behavior by Boston Research Technologies and Retirement Clearinghouse, a provider of plan-consolidation services to plan sponsors.
The survey of 5,000 participants showed that 34 percent of millennials, 34 percent of Gen Xers and 24 percent of baby boomers have cashed out plans at least once in their professional lives.
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Those cash outs come in spite of respondents claiming they value the idea of consolidating retirement assets when changing jobs: 73 percent of millennials said they would use so-called plan roll-ins if they better understood them; 66 percent of Gen Xers claimed the same.
Participants were asked why they chose to cash out instead of roll assets into plans with new employers: 22 percent said they weren't sure how to do so; 17 percent said roll-ins seemed too hard to do; 17 percent said they didn't have time to complete the process.
"Lifetime participation in plans is a critical success factor for participants of every age," said Spencer Williams, President and CEO of Retirement Clearinghouse
"The study confirms that by helping participants make good decisions when they change jobs and assisting them with the process of moving their retirement balances forward, plans can reduce the risk of cash-outs and stranded accounts, and produce significantly better retirement outcomes for their participants," Williams added.
Earlier this year, the Center for Retirement Research at Boston College published a paper calling for a law that requiring 401(k) assets to stay in plan or automatically rolled-in to an IRA when a participant changes jobs.
That policy, among others, is necessary to address the problem of plan leakage, that paper argued.
Warren Cormier, CEO of Boston Research Technologies and author of the more recent report, says the data confirms what plan experts previously suspected.
"Cash-outs and stranded accounts trace their common roots to the fact that most participants want to keep their accounts with them when they change jobs, but frankly, don't know where or how to begin the process," Cormier said.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
