As an employer, one of your responsibilities is ensuring the financial well-being of your employees, both during their active working years and into retirement. In recent years, there has been a shift in the retirement landscape, with an increasing number of retirees choosing to keep their assets in 401(k) plans rather than rolling them over into individual retirement accounts (IRAs). Recent articles from Investment News and Plan Adviser offered two key perspectives on this trend and how employers can adapt their strategies to meet the evolving needs of their retiring workforce and use the evolving features of the 401(k) plan to help employees build greater financial security.
The InvestmentNews article highlights a growing trend where more retirees are opting to keep their assets in their employer-sponsored 401(k) plans. Traditionally, many employees chose to roll over their 401(k) assets into IRAs after retirement, seeking more flexibility and control over their investments. However, this trend is changing as 401(k) plans evolve to offer options such as annuities, managed accounts, and other flexible ways for retirees to manage their assets and create a steady income stream throughout their post-career years.
In addition, employers are recognizing the value of retaining retiree assets within the plan. However, they could do more to make their plans more useful for this demographic, according to InvestmentNews. By offering more flexibility and a wider array of account options, such as lifetime income features, employers can help retirees have a seamless transition into retirement while also retaining plan assets and maintaining a connection with their former workforce.
Moreover, this trend offers several key advantages for employers. It simplifies plan administration by reducing the number of outgoing distributions, which can be time-consuming and costly. Furthermore, by retaining retiree assets, employers may be better positioned to negotiate lower plan fees, benefiting both current employees and retirees.
Similarly, contrary to the assumption that rolling over 401(k) assets into an IRA is always the best choice, a recent article in Planadviser makes the argument that keeping assets in a 401(k) may be more beneficial for retirees. Additionally, growing numbers of advisors are beginning to encourage their clients to remain in their 401(k) plan at retirement. With good reason, according to Pontera, a consulting firm, which argues that rollovers are not necessarily superior to staying in a 401(k) plan.
Pontera suggests that employers should consider the unique features and benefits of their 401(k) plans before encouraging rollovers. Factors such as lower fees, access to institutional funds, potential creditor protection, and the ability to take loans may make staying in the plan a more advantageous option for some retirees.
Employers should provide retiring employees with comprehensive information about the benefits and limitations of both options. Financial education programs, personalized guidance, and access to independent advice can equip retirees with the knowledge necessary to make an informed choice that aligns with their individual goals and circumstances.
As additional retirement plan income options become available through industry innovation and evolving legislation such as SECURE 2.0, employers must adapt their strategies to meet the changing needs and preferences of their retiring workforce. The trend of retirees staying in their 401(k) plans presents opportunities for employers to enhance their offerings while retaining assets and providing employees with a seamless transition into retirement. However, employers should provide retiring employees with the necessary information and support to help them make informed decisions. By taking a holistic approach to retirement planning, employers can better support their retiring workforce and help ensure their future financial well-being.
