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Retirement Insights

Bridging the Gap Between Accumulation and Decumulation for Participants

Lorie Latham, CFA, Senior Defined Contribution Strategist

A Guide for Plan Sponsors

Key Insights

  • Defined contribution plan participants are increasingly keeping retirement
    balances in plan, and a growing number of plan sponsors are interested in
    retaining these balances.
  • Information gleaned from focus groups suggests that participants have
    misperceptions about the value of staying in plan. Some participants do not
    even know that staying in plan is an option after retirement.
  • Participants approaching retirement age are inundated with information and even “advice” from sources outside their plan, but the quality of this information and advice can be uneven, misguided, or ill-informed. Plan sponsors can position themselves as a reputable resource and guide.
  • If plan sponsors want to maintain retirees in plan, they should not keep it a
    secret. It’s crucial that they engage with participants early and often.

Emerging data suggest that more defined contribution (DC) plan participants are keeping retirement balances in their employer-sponsored plans after retirement. We first detected this trend within T. Rowe Price’s proprietary recordkeeping data—a source that we regularly mine to unearth productive insights for our clients and partners. Over the last three years of available data, participants who separated from service at age 65 or older retained more assets within their DC plans than in prior years. For example, in 2012, 45% of account assets remained in plans at least a year after retirement. That figure catapulted to 61% in 2018.1

Our observations are supported by data from the University of Michigan Health and Retirement Study (often referred to as the “HRS database”). Among participants who retired during the two-year period from 2016 to 2018, only 13% withdrew their entire plan balance or rolled to an individual retirement account (IRA).2

Our latest Retirement Income paper, “It’s Time to Get Serious About Retirement Income Solutions,” highlighted that many plan sponsors have signaled a desire for their plans to become “destination accounts” where participants aggregate assets and keep them there throughout their retirement. In fact, T. Rowe Price’s research with plan sponsors revealed a widely held preference to keep retiring participants within their plans.

Fewer than 6% of sponsors with plans greater than $500 million indicated a desire for retiring participants to leave their plans. In contrast, 50% of the same group of sponsors have a clear preference for participants to stay in their plans into retirement.3 Whether their aim is to maintain and grow their plan’s assets (and the economies of scale that come with it) or to be part of the retirement journey with their workforce, growing data sources reveal that plan sponsors and participants are in alignment. In short, more retirees are staying in plan, and many employers are happy to keep them.

T. Rowe Price has been conducting extensive research on retiree needs and behaviors for many years. In the last few years, some key trends have emerged that offer a direct line of sight to participant views. To build on our work and explore these emerging trends, we conducted focus groups across multiple cities to better understand the decision-making process of preretirees and recent retirees. Our objective was to better understand the criteria and considerations used in determining when to retire and the corresponding actions taken to prepare for their retirement. We looked to uncover participants’ understanding of the various destination accounts they considered and why. We also wanted to understand where they turned for guidance and information. Mounting evidence continues to reveal the unique nature of each person’s needs and objectives in retirement. These focus groups, combined with our extensive research to date, have helped us develop actionable ideas that we believe will help plan sponsors going forward.

Many participants simply do not have the full picture. In the participant focus group sessions, it was clear early on that individuals in these groups—those edging up to preretiree (older Generation X), those in the preretiree phase, and those early in retirement—were missing important information about their DC plans. What we learned was quite surprising, and in some cases represented a disconnect from reality. Our three key findings offer valuable insight for sponsors to help reduce the misperceptions.

1. Participants Have Misperceptions About Costs and Plan Sponsor Motives

Surprisingly, many of the focus group participants had not considered that they could keep money in an employer-sponsored retirement plan after they retired. While they did view the DC plan as a primary tool for accumulation to get them to retirement, it was less common for participants to acknowledge these plans as somewhere they could maintain their accounts after they retired. When approached with the idea, some participants were open to considering staying in plan but were unclear of the benefits when compared with other options.

One common area of misperception centered around the cost associated with an employer-sponsored plan. When we asked participants if they thought fees were higher inside or outside their DC plan, some of the (often incorrect) sentiments included:

  • In-plan DC fees are higher.
  • There are “a lot” of hidden fees.
  • DC plans have extra fees that do not exist at the retail level.
  • Employers do not care about lowering fees.
  • Participants have limited awareness of the buying power and scale of their employer-sponsored plan.

We also heard misperceptions about plan sponsor motives related to DC plans, including:

  • They may not be looking out for their participants’ best interests.
  • They may be receiving kickbacks.

These misperceptions really got our attention. As an investment manager, a recordkeeper, and a partner to DC plan sponsors, we experience firsthand the fiduciary oversight and extensive work invested in DC plans.

We know these perceptions do not reflect reality. However, what became clear from our focus groups is that sponsors may not be getting credit for acting with participants’ best interests in mind to set them up for a successful retirement.

Plan Sponsors: How To Overcome Participant Misperceptions

Across generations, there appears to be very limited awareness of the benefits of being in the DC plan or remaining in the DC plan after retirement (Fig. 1). Plan sponsors should consider touting the many benefits of staying in plan and do so long before participants retire. Plan sponsors should actively convey many of the key benefits to staying in plan, including:

  • The potential for lower fees
  • The value of investment oversight
  • The value of account consolidation and scale
  • Continued access to credible information and resources

Ultimately, DC plan participants are looking for help as they transition from a savings mindset to a spending mindset, and they also may not be aware of the work being done to negotiate competitive fees on their behalf. Plan sponsors should feel confident educating their participants about the benefits of staying in plan and correcting inaccurate misperceptions.

Bridging the Gap Between Accumulation and Decumulation for Participants
Bridging the Gap Between Accumulation and Decumulation for Participants


1 Source: T. Rowe Price Retirement Plan Services, Inc. Percent of account value retained by defined contribution plan participants age 65 or older after 1, 2, 3, 4, or 5 calendar years following separation from service.
2 Retired participants age 60–69. Health and Retirement Study (HRS Core) public use data set. Produced and distributed by the University of Michigan with
funding from the National Institute on Aging (grant number NIA U01AG009740). Ann Arbor, MI, 2014 and 2016.
3 RSS4 © 2018 NMG Consulting. All rights reserved. Conducted for T. Rowe Price by NMG Consulting.
4 RSS5 © 2019 NMG Consulting. All rights reserved. Conducted for T. Rowe Price by NMG Consulting.

Important Information

This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide fiduciary recommendations concerning investments; it is not individualized to the needs of any specific benefit plan or retirement investor, nor is it intended to serve as the primary basis for investment decision-making.

The views contained herein are those of the authors as of March 2020 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

All investments involve risk, including possible loss of principal. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc., Distributor.

© 2020 T. Rowe Price. All rights reserved. T. Rowe Price, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks, or registered trademarks, of T. Rowe Price Group, Inc.

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