Retiree Assets: To Keep or Not to Keep?

How do your clients handle retiree assets in their plan? A recent blog entry examines the issue. 

What happens when a participant retires? Does he or she roll it into something else, or take the path of least resistance and just continue participating in the plan? And what does the plan sponsor prefer? 

This is an increasingly important question as defined contribution plans comprise an ever-larger slice of the retirement plans pie, suggests Mark Olsen, Managing Director at PlanPILOT. In “Keeping Retiree Assets in Plan. Has Your Committee Established a Preference?” Olsen argues that what happens to retired participants’ assets was not as important when DC plans were largely supplemental, but now that they are such an important part of retirement saving, plan committees no longer have the luxury of not taking a position on it and adopting an approach. “In fact, we posit that declaring a position on this topic has become one of the more critical decisions for committees today,” says Olsen. 

Key Considerations

Olsen offers some suggestions regarding factors and matters a plan sponsor could take into account when considering whether to take a position on the assets of participants who retire. 

Investments

Whether or not plan sponsors intend to encourage participants to remain in the plan at retirement will affect plan investments and accounts, Olsen says, including: 

• The qualified default investment alternative (QDIA). Olsen suggests that assessments concerning glide path and asset allocations account for whether the committee wants to keep participants’ retirement assets in the plan. This, he argues, is because that may affect how committee members think about allocation leading up to retirement and moving into retirement (e.g., higher or lower equity allocations at points in time along the glide path).
• The investment lineup. Olsen suggests that plan sponsors that want to keep retiree assets in the plan probably will consider expanding offerings beyond traditional core asset classes that help participants prepare for a variety of needs they may have to address.
• The approach to retirement income services. Olsen cautions that plan sponsors that want to keep assets in the plan “should also understand that it is imperative to begin to solve for specific retirement income services and solutions.” That, he adds, should: (1) inform how the committees evaluate the QDIA beyond asset allocation; and (2) include considerations such as the potential use of annuities and/or guarantees as part of target date funds. 

Service Providers

The degree to which a plan sponsor and administrator are involved with retirees’ funds will affect how they evaluate and choose service providers, Olsen observes. For instance, it will affect whether they seek a recordkeeper that accommodates specific needs or that is willing to adjust services to meet evolving needs; it also will affect how to address rollovers. 

“Without knowing the direction of a committee’s intent, it will be difficult to assess recordkeepers, custodians, or QDIA providers sufficiently based on need, which may result in unnecessary future disruption,” he argues. 

Engagement

How a committee views the matter of keeping retiree assets in the plan will have an impact on how they engage and communicate with participants, Olsen says. 

The Bottom Line

Plan sponsor committees risk experiencing unintended outcomes if they do not adopt a position on retiree assets, since the matter directly affects their decisions, Olsen warns. “We encourage committees to spend time on this topic to ensure that their decisions today and into the future are accounting for the post-retirement journey,” he says. Taking a position and adopting an approach will give a committee a foundation on which to make informed choices that will benefit both the participants and the plan sponsor, Olsen writes.