KnowHow Archive

Plan Sponsor Guide Participant Guide

Rollover “Take”

Helping participants hang on to their retirement savings

Of the 53.3 million workers covered by some form of retirement savings account, 39.5 million report having a lump-sum distribution option, and approximately 14.3 million have used this option at least once during their working life, according to a recent report from Congressional Research Service.
However, of those who reported that they had received at least one lump-sum distribution, only 36% said that they had rolled over the entire amount of the most recent distribution into another retirement plan (though that was 59% of the dollars distributed as lump sums).
In 1998, the average value of these distributions was $15,400, and the median value was $5,000. The typical recipient was between 36 and 39 years old at the time of the most recent distribution. Thus, most recipients of lump sums were more than 20 years away from retirement.
Postponing That Payoff
For plan sponsors, the message is both optimistic and ominous. Retirement savings efforts are paying off—but, in too many cases, that "payoff" is coming years before the participant's actual retirement. Moreover, good intentions and prior behaviors notwithstanding, once that money is "in hand," it all too frequently becomes a tempting target for some "here and now" consumption.
With the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), participants have more options for rollovers than ever before. Participants now can transfer balances between governmental Section 457 plans, 403(b) tax-sheltered annuities, and 401(k) programs. With some restrictions, amounts from Individual Retirement Accounts (IRAs) can be rolled over to an eligible retirement plan, and amounts attributable to employee after-tax contributions are now eligible as well.
Plan sponsors can help participants hang on to what they have—by helping them plan now for that future rollover. As always, we hope you find this month's  Know How useful in communicating with your participants—and, as always, look forward to your feedback.
- The Editors