Rolling over retiree assets? 54% of plan sponsors are keeping these 401(k)s in-plan

More than half of 401(k) plan sponsors (54%) prefer to keep their retired participants’ assets in their plan instead of rolling them into an additional IRA or other employer-sponsored plan, according to research from Cerulli Associates.

“Employers often cite wanting to help older workers close to the end of their working years as a main reason for offering potentially meaningful in-plan retirement benefits,” said David Kennedy, the company’s senior analyst. “Helping these workers often is seen as just the right thing to do but also can contribute to the overall culture of a company and aid recruitment and retention efforts.

“In addition, having more assets in a company retirement plan can enhance the plan sponsor’s negotiating position with recordkeepers and/or asset managers, which could help reduce the overall costs that a plan incurs on a regular basis, or enhance the products or services received.”

According to a survey Cerulli conducted in 2022 among defined benefit plan institutional consultants, the most commonly cited reason their plan sponsor clients opted to retain retiree assets was to enhance employee benefits to take care of employees in retirement (40%), followed by enhancing negotiating power with recordkeepers (27%).

When looking specifically at plans intermediated by institutional investment consultants:

• 35% actively seek to retain retiree assets.
• 40% prefer to retain retiree assets but do not actively seek to retain them.

Related: 80% of employees are unprepared for retirement: Employers should do more

Considering the size of the plans that institutional investment consultants advise, this confirms what many industry stakeholders suspect — interest in keeping retiree assets in-plan is greater among plan sponsors in the large and mega-plan market than those in smaller-plan asset segments.

“In-plan retirement income efforts are likely to most benefit workers who could benefit from professional asset management or financial planning but are not able or willing to pay an advisor,” Kennedy said. “These products and services are secured at group pricing and are vetted by plan fiduciaries, meaning their quality and cost-benefit tradeoffs have been reviewed by a professional who is legally liable to consider the best interests of plan participants above all else. None of that necessarily applies to products and services that are available outside of ERISA-covered retirement plans.”

Employers can use a variety of means of communicating these benefits to employees –- email, updates to the 401(k) plan website, group classes or one-on-one sessions with a financial professional.

“Communications should be targeted in messaging to employees who are near to retirement, addressing their questions and concerns,” he said. “It’s important to keep in mind that retirement planning is a highly individualized process, so opportunities for back-and-forth discussion and for employees to raise concerns that are specific to them and their household finances will likely be better received and more effective than asynchronous or mass-produced communications.”

Cerulli recommends that asset managers, key account managers and consultant-relations personnel schedule periodic check-ins with plan sponsors to assess any progress or new initiatives related to making their retirement plan more suitable for decumulation. From there, asset managers can more confidently assess whether the plan sponsor will be open to considering new retirement income products or solutions for their plan.