More than half of workers who elected to receive a lump sum from their 401(k) in 2014 rolled their money directly into a tax-qualified individual retirement account, according to new research.
Aon-Hewitt discloses this finding in a new survey, “2014 Lump Sum Windows,” that analyzes plan sponsors’ experience related to 70 terminated vested lump-sum windows implemented during 2014, the windows covering approximately 290,000 plan participants. The report details experience on terminated vested lump-sum windows implemented in 2014 and best practices for plan sponsors looking to implement future lump-sum windows.
The report reveals that 55 percent of the workers who opted to receive a lump sum distribution from their employer-sponsored 401(k) plan rolled their money directly into a tax-qualified account. The average lump-sum election rate in 2014 was 58 percent.
Rollovers as a percentage of lump sum distributions increase in tandem with the size of the lump. At lump sums topping $100,000, the rollover percentage is about 80 percent. This compares with just over 60 percent on lump sums varying between $50,000 and $99,000.
“Activity [connected with lump sum windows] increased in 2014 as a confluence of events — new mortality expectations, increased [Pension Benefit Guaranty Corporation] premiums, improved funded status, movement in interest rates, extended funding relief, and additional focus on managing pension risk — encouraged many plan sponsors to move forward with lump-sum windows,” the report states. “We expect plan sponsor interest in lump-sum windows to continue.”
Among the report’s key findings:
Plan sponsor experience continues to vary between 40 percent and 70 percent, with over 80 percent of plan sponsors falling in this range in 2014.
The 2014 lump-sum election rate, calculated as a dollar-weighted average for plan sponsors, was 49 percent. This compares to 58 percent when not weighted by dollar amount.
The lump-sum election percentage decreases as the size of the lump sum increases. Over 97 percent of the participants in the study had a lump sum benefit of less than $150,000.
The charts on the following page recap highlights from the report.