After decades encouraging participants to build up their retirement savings, plan sponsors have shifted their attention to helping them draw down their money sensibly throughout their retirement.
That was one of the key themes that emerged during Pensions & Investments' West Coast Defined Contribution conference held Nov. 3-5 in San Diego.
The majority of plan sponsors today offer retiring participants flexible distribution mechanisms that allow them to withdraw funds systematically over time rather than having to take their retirement savings in one lump sum, said Ross Bremen, a Boston-based partner at NEPC LLC, during a panel discussion on plan fees.
The Federal Thrift Savings Plan, the $599.5 billion 401(k) plan for federal employees, for example, loosened its withdrawal options for retirees in September, a move that cut the number of retirees taking full distributions by half, according to Jim Courtney, the Washington-based director of communications and education for the Federal Retirement Thrift Investment Board, which administers the plan.
"For years participants have been telling us they would love to stay in the plan if we could just loosen up very tight withdrawal rules," Mr. Courtney said.
Participants are now able to start and stop their scheduled payments, change the payment arrangements at any time and can even make ad hoc withdrawals on an as-needed basis, he said.
Many other plan sponsors reported thinking about ways to make it more attractive for near retirees to keep their money in the plan after leaving the workforce. Sempra Energy in 2019, for example, implemented partial distributions "so that retirees can take money out as they need any time," said Marvin Tong, the company's Los Angeles-based senior investment analyst of pension and trust investments.
Other plan sponsors at the conference that implemented more flexible withdrawal options for retirees and are looking to encourage them to stay in the plan include Qualcomm Inc., NFL Players Benefits and Unum Group.
The shift comes as plan sponsors seek greater economies of scale to maintain their leverage in negotiating record-keeping and other fees, a potential issue as waves of baby boomers hit retirement and start to draw down their funds, speakers said. Helping retirees transition out of the workplace also helps create "natural turnover," which allows younger workers to advance, said Matthew Gnabasik, a partner at financial services firm Cerity Partners in Chicago.
In addition, it shields them from "the retail world of investments," which he said can be a dangerous place. "If you're a newbie or a novice, you can get fleeced," Mr. Gnabasik said.