Rollover Retention Rates Down, Survey States

A study by Brightwork Partners LLC shows that 24% of participants rolling over from a 401(k) or similar plan into an IRA will choose the plan provider to manage their assets, down from 2001, when 29% chose that route.

Noticeable changes, according to Ronald Bush, principal of Brightwork Partners, are successful acquisition initiatives targeted to high balance participants, as well as the increasing focus of wirehouse-based advisors to these participants. Bush notes that only 4% of participants have balances exceeding $250,000, but this group accounts for almost half of the assets coming to the market in 2004. Rollover retention is even lower at this level, according to Bush, which brings the overall asset retention down significantly.

Brightwork Partners advise qualified plan providers that as rollover retention rates drop, they may find previously untapped opportunities in balances left in plans.  “We used to think this money was completely gone in a few years,” Bush noted in a press release. “The study shows that once left-in-plan balances hit their second anniversary, they have an excellent chance of staying where they are. Part of this is just investor inertia. But a big part of it is the increasing success of several providers who have put a strategic focus on retaining investors in the qualified plan.”

Brightwork estimates that there are approximately 7.1 million current or former participants in qualified plans who will becomes eligible to receive plan distributions this year, which represents $370 billion assets. People changing jobs constituted nearly 80% of these transactions, but retirees account for nearly 60% of the assets.

The survey was conducted of over 3,500 random participants and former participants who were eligible to receive a distribution from a qualified plan n the past three years.

Brightwork Partners in a research-based consulting firm based in Stamford, Connecticut, which serves the defined contribution community.