PLANSPONSOR - April - May 2022 - 37

PLAN DESIGN | POST-RETIREMENT
For one, if sponsors have more
post-retirees on their roster, this could
increase even just ordinary responsibilities
for fiduciaries, Latham says. " You
may also end up with individuals who
remain in the plan and who want more:
You could have this minority asking for
more options and services, which could
require more administrative and fiduciary
oversight from those plan sponsors that
maintain higher numbers of people who
have moved into retirement.
" [Those few retirees] may prefer
investment options that aren't in the
DC lineup and may not have access to
a self-directed brokerage window, " she
continues. " They may also want to work
with an adviser to manage their assets,
and it can be tricky to do that if the adviser
doesn't have purview over the assets. They
might want to pursue a retirement income
option that's not available through their
plan, as well. "
While some retirees may want to take
their assets with them so they can work
with an adviser or expand their investment
options, a participant receives several
advantages from keeping her retirement
assets in her former employer's DC plan.
" What participants gain is fiduciary
oversight of the plan, " says Latham,
who notes that plan sponsors spend a
" tremendous amount of time, effort and
energy " negotiating lower fees on behalf
of participants and narrowing the field
to make better investment selections
for them " so they're not dumped out
into the retail world where they are most
likely going to pay higher fees, " she says.
" It can be paralyzing for participants to
decide what to do with their assets. If
they remain in the plan, they are in a
protective environment where the work
is being done for them. "
Dan Oldroyd, head of target-date strategies
for J.P. Morgan Asset Management
in New York City, cites a participant
survey his firm conducted last year, which
found that 85% of respondents of all ages
said they would leave their assets in the
retirement plan if their employer offered
retirement income solutions. The figure
was even higher for younger participants-86%
for those under age 30, and
91% for those 30 through 49.
" Employees of all ages, but particularly
younger employees, based on our
survey data, value having access to an
income option once they retire, " Oldroyd
says. " This may make a true 'retirement'
plan attractive to some potential
employees, in a tight labor market, "
he says. " Investment solutions that are
designed to help retirees spend down
their retirement savings, that are easy to
understand and offer flexibility, would go
a long way toward keeping them in-plan. "
According to a 2021 PIMCO survey
of consultants and advisory firms serving
more than 33,000 defined contribution
clients, approximately 75% of 401(k) sponsors
said they prefer to keep participant
assets in-plan after the employee retires,
up from less than 50% in 2015. The survey
found that allowing flexibility in income
distribution,
adding retirement
education/tools,
and communicating the value
of staying in-plan were among the most
popular recommendations for sponsors
wanting their plan to retain retiree assets.
The PIMCO study also found that
plan sponsors are changing how they view
401(k)s-from what had been a vehicle for
saving to one that will generate income for
participants. It further, incidentally, found
that the majority of consultants recommend
a blend of actively managed and
passive funds for core investments and
that interest in environmental, social and
governance investment options continues
to grow, with more than half of consultants
planning to recommend sustainable
options if they have not yet done so.
Both Latham and Oldroyd say they
have found that the idea of staying in
one's employer's 401(k) is gaining traction
among plan participants.
" We're definitely seeing the numbers
tick up with respect to people doing so, "
Latham notes.
According to Oldroyd, J.P. Morgan
Asset Management's
earliest
studies
" Investment
solutions that
are designed
to help retirees
spend down
their retirement
savings ... would
go a long way
toward keeping
them in-plan. "
showed that the vast majority of participants
withdrew all of their plan assets
within three years of retiring. " Only about
28% stayed in-plan, so 72% withdrew
within three years, " he says.
Yet, " In this year's study, we saw a
significant leap in the number leaving at
least a portion of their balance in their
plan-more than double from 10 years
ago, " Oldroyd says.
As more plan sponsors support postretirement
plan participation through
communications and the selection of
in-plan income investment solutions,
he says, " we believe most participants
will take advantage of the opportunity to
remain in-plan. "
Still, an obstacle preventing more
participants from leaving their account
behind is that many of them are unaware
they may do so. When Latham worked
at T. Rowe Price and, earlier, at WTW,
the firms conducted focus groups on the
subject and found that many participants
did not know about the option.
As to plan sponsors and recordsending
keepers
soon-to-be
retirees
paperwork
on how to roll their assets out
of the plan, Latham says, " People aren't
experts. So I think one thing we can get a
little smarter about is the timing and how
we communicate with individuals about
what their options are. " -Michael Katz
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