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A New Rationale For Roll-Ins?

While there has been plenty of discussion about roll-ins and much concern expressed over cash-outs, little has been done to change things or understand why. To get a better understanding, Retirement Clearing House, a third-party roll-in provider, commissioned Boston Research Technologies to survey participants about past behaviors as well as provide insight into potential solutions.

In April, BRT surveyed 5,000 DC plan participants to gauge their behavior and attitudes about their disparate retirement accounts, as well as cash-outs. Though it differs by generation, nearly one third of participants have cashed out at least once in their lifetimes — mostly during periods of unemployment, but also because it was convenient.

While they are open to rolling their old accounts into their new plan, especially if there is no cost to do so, most find the process too long and too complicated. On average, the process involves 19 hours of work and can take up to two months, and many participants have to rely on third-party assistance. Many are open to rolling in their IRAs as well, according to Warren Cormier, author of the study and BRT’s president.

“Portability was designed into the retirement system but was never fully developed or designed,” Cormier notes. “Friction costs are large and growing.” (Cormier, a regular columnist for NAPA Net the Magazine, wrote about the friction issue in the most recent issue of the magazine.)

What's in it for plan sponsors? Larger plan asset bases and larger average account balances, in particular, translate into lower costs and better service, which help mitigate fiduciary risk while improving outcomes.

What's in it for advisors? More AUM increases fees, and facilitating roll-ins can solve the sticky issues around rollovers raised by the DOL's proposed fiduciary rule — and differentiates advisors who seek to position themselves as a thought leader. Where's the downside?

What’s your take on all this? Start a discussion in the comment box below.

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