Vanguard believes that retirement plan sponsors should not just help their current workers but those who have retired, and to accomplish this, the investment firm has five recommendations centered around allowing retirees to keep their money in the plan and create income streams.
As many plans force people to cash out when they reach a certain age, such as 65 or 70.5, Vanguard is asking plans to consider lifting such requirements. Vanguard further invites plans to permit retirees to take partial, ad hoc distributions. Currently, only 13% of plans permit this, Vanguard says.
Just as plans permit new employees to roll over assets from previous plans to consolidate their assets and better manage them, Vanguard believes that plans should open the gates to permit retirees to include outside assets.
Next, Vanguard reminds sponsors that even retirees need to grow their assets. In order to do this, the firm believes plans should offer investment options for retirees. And finally, Vanguard says education and advice should be available to a plan’s retirees.
“Today, about 80% of DC participants decide to leave their plan within five years of retirement, either by rolling over to an IRA or cashing out,” says Martha King, managing director of Vanguard Institutional Investor Group. “At Vanguard, we believe many of these participants can be well served by staying in their plans, where they can benefit from employers’ fiduciary oversight and low-cost investments. Creating a DC plan that serves as a destination for employees beyond their retirement milestone is not a simple decision, but it’s certainly an important one.”