If you’re getting close to retirement age, you might have received a pitch or two from financial advisers eager to manage that money. No surprise there.
Increasingly, however, employers themselves are muscling into the mix, so it’s important to understand how your plan stacks up to the outside investment world, particularly now that plans are disclosing detailed fee information.
After the State of Oregon’s retirement plan recently implemented a toll-free number and a “transition counseling program” for state workers leaving their jobs, 90 percent of the 116 workers who went through the program kept their money in the plan, said Gay Lynn Bath, deferred compensation manager for the Oregon Savings Growth Plan in Salem, Ore. Overall, though, most employees take their money and run.
“We have some pretty aggressive companies actively seeking rollovers,” she said.
The public plan has a vested interest of its own in keeping the money, of course, because higher plan balances lead to lower costs for participants, but Bath says the state plan offers a wide array of choices and lower costs than many retail alternatives.
“There’s a misperception that when you leave a company you have to take the 401(k) with you, when in fact you don’t,” said Alison Borland, vice president of retirement strategy and product development at Aon Hewitt, a company that provides administrative services to plans. (Check with your own plan for its rules on small-balance rollovers, however).
“If you’re moving to a small startup with high fees, for example, you can save a lot of money by leaving that balance in the prior plan,” she said.
Borland and Bath were recently part of a webcast for retirement industry professionals hosted by PlanSponsor, an industry publication, where they discussed strategies for boosting plan assets.
The trouble with that for retirees is that not all workplace plans are set up to handle the distribution phase of retirement.
Few employers have started offering annuities, but income-oriented mutual funds and target-date funds have the potential to keep people from rolling out their money when they retire, said Amy LaFrance, senior research analyst for Financial Research Corp.
“The risk of running out of funds is such a prevalent fear that many in the industry have now referred to having enough income through retirement as the ‘New American Dream,'” LaFrance wrote in a recent industry report.
Income through retirement means striving to do more than just encourage workers to contribute a portion of pay. Using richer company matches, automatic contribution escalation and income-oriented investment choices geared to retirees who remain in their workplace plan, the idea is to reach for balances at retirement that actually provide enough regular income to live on for a reasonable number of years, experts said.
Land O’Lakes, the Minnesota-based agricultural cooperative, added an income-focused investment option to its plan this year as its more than 9,000 retirement plan participants transition away from a defined benefit pension plan to a defined contribution one, said Bob Tomaschko, senior director of compensation, retirement and human resource management systems.
Over time as the employee approaches retirement, the investment objective moves from a total-return objective to an income objective, he said.
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Perhaps more important, the cooperative offers a substantial match for workers who were phased out of the pension. In addition to a regular match of 4 percent of pay, those workers get an additional 3 to 5 percent as a profit-sharing contribution.
He said the company consulted actuarial assumptions about how much income employees will need after retirement — rather than reaching for an arbitrary paycheck withdrawal — as it set the match and benchmarks for automatically boosting employee contributions.
Keeping former employees in their plans is another coming-full-circle trend for the retirement industry: Remember when portability was the holy grail for retirement accounts?
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