What Participants’ Distribution Decisions Are Telling Us

By Neal Ringquist
Published on August 4, 2015

“Make the smart decision the easiest decision.”

This seems like an obvious goal for plan sponsors when designing participant directed retirement plans, and it’s certainly driven the rapid adoption of the autos – auto enrollment, auto deferral escalation and auto pilot investment options, such as target date funds.
However, with regard to the portability plan feature – specifically, the participant distribution decision upon job change -- the opposite has been the case. Groundbreaking research conducted by Boston Research Technologies in collaboration with Retirement Clearinghouse this past April demonstrates that participants are in fact selecting the easiest options with respect to their prior employer balances – cashouts and leaving balances behind – but those decisions aren’t the smartest. Participants know this as evidenced by the high percentage of participants who later regret their cashout decision. The research offers valuable insights into the distribution decision behavior differences across age and gender, illustrating the need for targeted communication strategies to properly influence participant behavior, and points to plan changes required to improve portability. 

 

By managing portability – facilitating automatic rollovers and roll-ins – plan sponsors can promote lifetime participation in retirement plans and effectively address some of the unintended consequences of the autos, such as proliferation of small accounts and missing participants.

For more information, access an executive summary of the research’s key findings: Portability and The Mobile Workforce: Gender and Generational Behavioral Differencesor watch the recorded webcast with RCH CEO Spencer Williams and BRT's Warren Cormier who discuss the key findings: Portability and The Mobile Workforce: How Job Changing Impacts Retirement Savings in detail. 

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