A recent Alight Solutions study examining defined contribution (DC) plans has found more participants are keeping retirement plan balances invested when leaving the plan due to either termination or retirement.
The “2019 Universe Benchmarks” report, conducted with 121 plans and covering more than three million eligible participants, was split in categories between participation rates, plan balances, account distributions, and more by age, gender, tenure and industry.
According to the findings, post-termination behavior during 2018 was similar as in past years. Thirty-two percent of participants who left their job during the first nine months of 2018 kept their balances in the plan as of year-end. Seventy-seven percent of dollars that left plans were moved to individual retirement accounts (IRAs).
Older workers were more likely to roll plan balances into an IRA, and while younger workers generally preferred these accounts, they were more likely to roll plan balances to a different employer’s plan or submit a cash distribution, says Alight. In fact, the study reported 34% of participants ages 20 to 29 cashed out their savings, while 39% rolled their balances into an IRA and 27% rolled their balances into another plan. Older workers, however, much preferred an IRA rollover. Eighty-nine percent selected rolling over balances into an IRA, while only 8% cashed out and a mere 3% rolled over to a different plan.
Improved savings behaviors
Despite a decrease in overall plan balances, the study suggests participants’ savings behaviors have improved. The average participation rate remained at 80% for the third year in a row, and at 87% for plans offering automatic enrollment. This all hints, of course, that workers are contributing either the same amount of dollars or more to their accounts. On average, employees contributed 7.9%, or $6,257, to their savings in 2018—the same as the year before. However, Alight says this lack of change is attributable to new hires who more than likely contribute at smaller rates. Among workers who contributed in both 2017 and 2018, the average contribution rate rose from 8% to 8.4%.
Additionally, Alight reports 32% of workers grew their contribution rates from 2017, and nearly three-quarters (74%) of plans added auto-escalation to their auto-enrollment plans.
A majority of workers have also been taking advantage of the company match. The study finds 79% of workers are contributing at or above what is required to earn the full match, and half of workers are contributing more than the amount necessary.