According to a study by the Center for Retirement Income at The American College of Financial Services, 62% of older workers who retire decide to move their money out of the defined contribution (DC) plans like 401ks and 403bs to an IRA. The study goes on to suggest that those people who move their money out of their former employer’s plan are more likely to work with an advisor and have a comprehensive financial plan.
The study was conducted late last year with over 1000 people 60 or older who retired in the last three years with at least $75,000 in their DC plan. Of the 38% that left the money in their plan citing attractive investments options, only 56% used an advisor and many admitted that leaving the money was just easier.
The obvious conclusions are that retirees should rollover their money out of their DC into an IRA using an advisor which may be true for some people, but is it true for everyone? The most controversial aspects of the DOL’s conflict of interest rule deals with IRAs – advisors working on them would have to act as a fiduciaries and advisors working with the plan cannot charge participants more when they roll their money out. Some argue that many people are better off leaving the money in their former employer’s plan because costs many be lower with better pricing available to bigger pools of money, the investments are selected and monitored by fiduciary investment committees most working with high level advisors or consultants, they are covered by ERISA and there may be better protection of assets from creditors.
Digging deeper, the American College, which conducted the study, trains and educates financial advisors and is funded by the financial services industry. Would anyone accuse them of being unbiased? And many DC plan sponsors are starting to see the benefit of greater assets in their plan which give them better leverage with providers who are more than willing to communicate with retired or terminated employees in exchange for managing more money.
