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Spectrem Identifies Rollover Opportunities

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The amount of assets available for rollover increased 23% between 2007 and 2011, despite the financial crisis in 2008, a report by Spectrem Group found. Assets increased at an average annual rate of 5.3% since 2007.

Spectrem surveyed nearly 1,000 retirement plan participants with at least $5,000 in their accounts and found that of the eight million people who had an opportunity for a rollover, 26% had balances greater than $100,000, accounting for 72% of assets.

While the amount of assets available for rollover grew, the proportion of participants who rolled all or some of their assets in an IRA fell slightly to 52% in 2011 from 54% in 2007. Almost one-quarter left their assets in a former employer’s plan and 18% took a taxable withdrawal.

Taxable withdrawals have become increasingly unpopular over the past 10 years, according to Spectrem. The percentage of individuals taking a withdrawal fell from one-third to one-quarter between 2004 and 2007 and fell again to 18% in 2011. “Educating plan participants about the value of keeping their retirement savings inside some form of tax-qualified account to actually use in retirement appears to have been successful,” according to the report.

Baby boomers dominate the IRA rollover market in both assets and body count. Over half of respondents surveyed by Spectrem are 50 or older, and 78% of assets are owned by boomers.

Regardless of the trigger for a rollover—retirement, a job change, or simply consolidating assets from other plans—rolling assets into an IRA was by far the most popular option. However, following one of those triggers, retirees were more likely than job changers or consolidators to set up an income arrangement. The most common arrangement was to take systematic withdrawals, although 34% of retirees used the assets from their plan to purchase an annuity. Over one-quarter of job changers left their assets in an old plan, while 9% of consolidators took all or part of their balance as a taxable withdrawal.

Participants leave their assets in a former employer’s plan primarily because they like the investments in the plan. However, inertia plays a role as well. “The plan investments are working out and doing nothing is easier than making the effort, or taking the time to open a new account using the same funds,” the report found.

The likelihood of a rollover increases with the size of the plan balance. Just 38% of individuals with less than $25,000 rolled all or part of their assets into an IRA.  “Above this balance, individuals appear to want to take more control of their retirement savings,” according to Spectrem. “An IRA allows them to select the provider they are most comfortable with and to broaden the investment options they have beyond those available in the plan.”

Online resources are no longer favored solely by younger investors, the report found. “Retirees are just as likely to use these sources for information on their rollover and in other financial transactions,” according to the report. Furthermore, regardless of the trigger for moving assets out of a plan, about a third of investors went online for help making the decision to take a rollover. The plan provider’s website was the most popular source for information, but nearly half of investors looked at a website that wasn’t affiliated with any financial company.

The most important factor in selecting an IRA provider for a rollover was whether the investor already had a relationship with the company. The 2011 IA/Cerulli Retirement Income Study came to the same conclusion regarding rollovers.

“Advisors are most likely to capture the high end of the rollover market due to their personal interaction with higher wealth clients,” Scott Smith, associate director at Cerulli Associates, wrote. “Plan providers must identify and capitalize on their opportunity to create stronger relationships with participants while they are active in their plans in order to maximize their chances of retaining assets once the participant has reached a distribution triggering event.”


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