Alight had a lower percentage of dollars flowing to IRAs than other DC recordkeepers
In 2017, only 10% of Alight clients’ eligible assets were rolled into IRAs. This number is materially lower than that reported by other companies. For example, according to Cerulli Associates, 25% of eligible assets in 2017 were rolled over to IRAs.5
Additionally, Vanguard states that 59% of participants who terminated on or after age 60 had rolled their money out of the plan within 10 years of terminating.6 Among Alight clients, just 35% of these individuals took a rollover within 10 years.
It should be noted that Alight is expected to have a lower percentage of IRA rollovers than recordkeepers that offer IRA products to individuals, since Alight does not engage in that practice. As the Government Accountability Office has reported, people “often receive guidance and marketing favoring IRAs when seeking assistance regarding what to do with their 401(k) plan savings when they separate from their employers,” and it is not uncommon for recordkeepers’ call center representatives to encourage individuals to roll their 401(k) plan savings into an IRA, even with only minimal knowledge of a caller’s financial situation.7
According to a Hearts and Wallets study, people are inclined to roll their balances into an IRA account run by their 401(k) recordkeeper. They found that 55% of accounts with less than $25,000 in assets rolled their money into an account with their 401(k) administrator. Among accounts of at least $100,000, 32% of people use their 401(k) provider’s IRA, and for accounts with $500,000 or more in assets, 24% of people went with the same provider.8
These numbers are much higher than what Alight’s data shows. Across all plans and balance sizes we studied, the most common IRA destination collected only 17% of IRA rollover dollars. While this is significantly more than the next most popular destination (which collected 8% of IRA rollovers in 2017), it still represents less than one out of every five dollars rolled over from the plan. Overall, Alight’s data shows that more than 5,000 different providers have received rollovers. With such a crowded marketplace, it is not surprising that no one provider receives a majority of the rollovers.
Finally, few rollovers from DC plans went to other employer-sponsored plans. Among 2008–2017 terminated participants taking a rollover distribution by December 31, 2017, the dollars rolled over to IRAs outnumbered the dollars rolled over to other qualified plans by a factor of roughly 10 to 1. This is perhaps unsurprising, given the massive marketing efforts of the financial services industry to attract customers’ assets versus the virtually non-existent efforts of DC plans to promote plan-to-plan rollovers.
Destination of IRA rollover dollars by year