The data shows a clear delineation between thethinking of sponsors of plans with more than $500 million in assetsand those with less than $500 million in assets. (Photo:Shutterstock)

A couple of years ago, Lorie Latham, senior defined contributionstrategist and a vice president at T. Rowe Price, initiated anoutreach program to plan sponsors to see what their feelings wereon retiring workers and whether those sponsors wanted them to stayin 401(k) plans after leaving the workforce.

The vast majority indicated they wanted retirees to stay inplan, Latham told BenefitsPRO.

“We were shocked,” she said of her team's initial findings. Anindustry veteran, she spent the decade prior to joining T. Rowe onthe consulting side. “The question of what to do with retiringworkers simply wasn't on sponsors' minds.”

That is changing, quickly and decidedly, says Latham, who onlyexpects the trend to increase. Building on the initial outreach,she and her team set out to dig deeper and began to mine sponsors'perspective on what is motivating their evolving mindset.

Recently, T. Rowe produced data from the latest iteration of itsresearch. Of more than 200 sponsors surveyed, only 17.8 percentwould prefer their workers take their 401(k) money when they leave the workforce.

About 40 percent of sponsors said they have a clear preferencefor keeping retirees in plan.

The data shows a clear delineation between the thinking ofsponsors of plans with more than $500 million in assets, and thosewith less than $500 million in assets.

Among larger plans, half said they prefer money to stay in plan,with only 5.7 percent preferring participants roll over savings toan IRA or take a lump sum.

With the smaller cohort, only about 30 percent said theypreferred money to stay, with 28.4 percent preferring money migrateout of the plan–substantially more than in plans with more than 500million.

Larger sponsors' interest in scale—the more assets they retain,the greater bargaining power they will have withproviders—partially explains their mindset.

But it is likely not their exclusive motivation, said Latham.Smaller sponsors are likely more concerned over their ability toprovide the administrative support for separated workers.

Among employers of all sizes, T. Rowe's data indicates sponsors'genuine concern for the best interest of their workers.Two-thirds agreed that the fiduciary protections under the EmployeeRetirement Income Security Act mean retirees are better off leavingmoney in plan as opposed to rolling it over to an IRA.

And three-fourths agreed that the likelihood of lower investmentcosts available to money that stays in plan, as opposed to thoseassociated with IRAs, was also reason to encourage money to stayinside 401(k)s.

“By keeping participants in plan, participants are gettingfiduciary safe haven,” explained Latham. “Sponsors recognize that,and that's a positive thing. They care about their workers. Theyare interested in their employees' future. We have generoussponsors trying to do the right thing. That shows in the data.”

Fiduciary risk, as expected, is affecting sponsors' mindset onretaining assets. If assets are to stay in plan, it follows thatplans will have to offer some form of an income solution. Nearly 60percent of all sponsors said adding income features to investmentmenus invites more fiduciary risk.

Perception is reality, said Latham. But while fiduciary risk isa genuine concern, T. Rowe's data shows that most sponsors thinkthe risk is worth taking. Only 14 percent said the risk is greaterthan the potential benefits to participants leaving money inplan.

For larger employers, risk mitigation could be a dividend toretaining assets, which would help allow sponsors to buildinvestment menus at lower costs.

“We know litigation is tied to fees,” said Latham. “Scale is onelever sponsors can look to manage litigation risk. If you cancomplement your fiduciary need to do what's in your employees' bestinterests and mitigate risk, more power to you. That's a goodthing.”

A troubling grey area

That sponsors' awareness of their retiring workers' bestinterest is growing is hardly disputable.

But T. Rowe's data also shows many are in limbo over thequestion of how to guide retirees' assets.

Nearly 40 percent—roughly equal for plans above and below the$500 million threshold—report having no clear preference as towhether retirees keep money in plan or roll it over.

“They either have not thought about the question, or they'vethought about it and determined they're not interested indeciding,” explained Latham. “Either way, that's troubling.”

That stasis could have consequences for sponsors, warnsLatham.

“If you haven't thought about the question, how can you makesome pretty important fiduciary decisions?” she said.

“How do you approach plan documents if you don't have apost-retirement strategy? How do you engage with your pre-retireecommunity? And if as a sponsor you are not clear on where you wantto be, how can you adequately assess retirement income solutions?”added Latham.

As more sponsors show an interest in keeping money in plan—andhelping retirees responsibly draw down savings–more of thosesponsors articulating indifference are bound to be nudged.

And that is bound to create an impact on the quality of incomesolutions offered.

“So many products have hit the market over the past decadetrying to solve for retirement income,” said Latham. “Many haven'thad traction and remain on the shelf. But there is greaterawareness of what we are trying to solve for—it's becoming moreabout a solution, not a product.”

T. Rowe data shows three-quarters of sponsors overwhelminglysupport offering a suite of retirement income solutions—systemicwithdrawals, managed accounts, stable value funds, bond-ladderingstrategies, or annuities—instead of one option. T. Rowe Priceremains product agnostic, said Latham.

“We are fundamentally in favor of acknowledging the preferencesof individuals, and seeing how we can best solve for that,” shesaid. “We're not interested in pushing a product. We want to partof the solution.”

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