Annual research by Vanguard Group Inc. of its record-kept clients showed the percentage of participants keeping their retirement assets in their plans remained essentially steady, usually in a range of 67% to 69% between 2012 and 2021, based on participants who were eligible for distributions in the specific year or in prior years.
The percentage of participants taking rollovers has remained steady, too, with a range of 12% to 14% during this period, according to the most recent Vanguard research report published in June. The percentage of participants taking a cash lump sum ranged between 14% and 19%.
However, when measuring plan assets, Vanguard's analysis showed an almost steady increase in retirement assets remaining in plans — 81% in 2021 vs. 75% in 2012. At the same time, the rollover assets declined to 16% from 20% during this period. Cashouts hovered between 1% to 3% of assets during this period.
This data indicate that the smallest accounts are the most likely to be cashed out. Balances of less than $1,000 are usually cashed out by an employer unless an employer allows the money to remain in the plan. Plan balances between $1,000 and $5,000 are "generally rolled over automatically to an IRA unless a participant elects otherwise," although some sponsors may allow balances of more than $1,000 to remain in the plan, said the Vanguard report. "Most plans have adopted these provisions."
Changes in plan designs and in sponsors' attitudes making DC plans "more retirement-friendly" are giving participants' more reasons to eschew — or at least delay — IRA rollovers, said David Stinnett, principal and head of strategic retirement consulting at Malvern, Pa.-based Vanguard Group.
"We have seen an uptick in plan sponsor focus on retention of participant assets in the plan," said Mr. Stinnett, citing the trend in sponsors' fee-cutting over the years as well as their making plans "more flexible for retirees, such as adding advice and retirement-income solutions."
Among participants in Vanguard record-kept plans, 72% can take ad hoc partial distributions after they leave and 80% can set up installments. "These percentages are up from 41% and 70% respectively" from 2016, he said. "Our research shows that when these types of flexible withdrawal options are offered, participants are more likely to remain in the plan."
Demographics also plays a role. "More workers are retiring from 401(k) plans than in the past and they have balances that have benefited from being one of the first generations to have invested in a 401(k) for almost their whole work life," he said. "Keeping these balances in the plan allows for economies of scale."
Vanguard tells people "to look at the fees, the different services and the greater financial wellness" features of institutional plans vs. retail IRAs, Mr. Stinnett said. "We encourage people to compare and contrast."