The percentage of defined contribution (DC) plan sponsors with a policy for retaining the assets of terminated and retired participants in their plans has increased steadily since 2015, according to the Callan 2020 DC Trends Survey.
More than six in 10 (62.7%) had such a policy in 2019, up from 58.1% in 2018. The percentage that had a policy for retaining assets in the plan in 2015 was 43.5%. Specifically, 72.3% with a policy seek to retain retiree assets, and 61.7% seek to retain assets of terminated participants.
An Alight Solutions study last year found DC plan participants who have small balances when they terminate employment are more likely to cash out than those with higher balances. Alight recommends that plan sponsors educate participants about their retirement plan choices, particularly discouraging younger workers who leave for other jobs from cashing out.
Employees who keep their assets in their DC plans after terminating or retiring from employment benefit from lower fees and having balances available for retirement income. According to the Callan survey, many of the plans seeking to retain assets offer an institutional structure that is more cost effective than what is available in the retail market. For plan sponsors, if they retain terminated and retired participant assets, the size of the plan is higher and, thus, they have more bargaining power with respect to service providers’ fees.
The Alight study found DC plan participants who were age 60 or older when they retired were more likely to keep assets in the plan if it permitted installment payments. Plan sponsors can also help participants in retirement stay properly invested while decumulating their assets by offering an in-retirement investment tier.
According to the Callan 2020 DC Trends Survey, one-third (32.5%) of plan sponsors offered a drawdown solution or calculator in 2019, up from 10.8% in 2018. One-quarter (24.7%) offered managed accounts/income drawdown modeling services, compared to 17.6% in 2018.Callan conducted its 13th annual Defined Contribution (DC) Trends Survey online in September and October of 2019. The survey incorporates responses from 114 DC plan sponsors, including both Callan clients and other organizations. The full survey report is here.
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