Post-Retirement Friendly Plan Designs

Workplace retirement plans are often, and rightfully, designed to help workers get to retirement – but why stop there?

Today, about 80% of DC participants decide to leave their plan within five years of retirement, either by rolling over to an IRA or cashing out, according to Vanguard, though there seems to be a growing interest in helping workers preserve those assets once they have left employment, whether borne of a paternalistic streak, or perhaps of an awareness that retaining those assets can help keep plan fees lower.

A recent blog post by Martha King, managing director of Vanguard Institutional Investor Group, outlines some alternatives:

  • Remove age restrictions. Eliminate mandatory cash-out provisions for participants who reach a traditional retirement age, such as 65 or 70½.
  • Consider greater withdrawal flexibility. Offer distribution options that accommodate the variable income needs of retirees. Only 13% of Vanguard recordkept DC plans accommodate partial ad hoc distributions, yet those that do, retain about 50% more in retiree assets, according to King.
  • Allow for incoming rollovers. Consolidating assets helps simplify financial management for retirees and builds economies of scale for your plan.
  • Offer investment options for retirees. While some individuals will have a capital preservation and income mindset, others will still be focused on growing their assets as they draw on guaranteed income sources outside the plan.
  • Offer retirement advice and education. Retirement is complex, and the plan’s resources need to be tailored to the specific questions and concerns of individuals navigating this challenging phase of one’s financial life.

Add Your Comments

One Comment

  1. James Farley
    Posted March 7, 2017 at 11:37 am | Permalink

    Another participant friendly feature dovetails with partial distributions. If a sponsor allows them when a participant leaves after age 55 it can save lots of excise taxes if income needs arise between 55 and age 59 1/2. Once rolled over the excise penalty reattaches until age 59 1/2.

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