Defined Contributions eBook: IRA Rollovers From DC Plans Pegged at $2 Trillion in Next Five Years

With Baby Boomers starting to retire, money coming out of DC plans looks like a major opportunity for asset managers offering IRAs.


Let the race to capture $2 trillion begin. That is how much Financial Research Corp. (FRC) expects to see in IRA rollovers from defined contribution plans between 2011 and 2015, according to its report “The Rollover Decision: Successful Strategies for Retaining Retirement Assets” issued last May. IRA rollovers historically have been the major source of contributions to IRAs, FRC says — and with Baby Boomers starting to retire, money coming out of DC plans looks like a major opportunity for asset managers offering IRAs over the next several years.

From 2000 to 2010, compound annual growth averaged 3.4 percent for retirement-plan assets and 6.5 percent for IRAs, according to research from Brightwork Partners LLC, a research-focused financial services consultancy. Net cash flow (inflows minus distributions) totaled $1.6 trillion for IRAs during that time, versus $400 billion for qualified retirement plans. “You could say that the employer-based system is a feeder for IRAs,” says Ron Bush, a Brightwork principal.

The IRA growth will continue accelerating, Bush says, citing U.S. Census data. In 2010, Americans age 65 and older totaled 40 million, or 13 percent of the U.S. population. Estimates call for that to grow by 2020 to 55 million, or 16.1 percent of the population, and then by 2030 to 72 million, or 19.3 percent of the population. “What has happened over the past 10 years is just going to be amplified over the next 10 or 20 years,” he adds.

When they leave an employer that offers a retirement plan — either retiring or switching jobs — 42 percent of people roll over to an IRA, 26 percent leave their account balance in the employer’s plan, 18 percent withdraw the money and pay the taxes on that withdrawal, 7 percent transfer the money to a new employer’s retirement plan, and 7 percent purchase an annuity or arrange a systematic withdrawal, Brightwork research indicates. That research includes both defined contribution and defined benefit plans, but more than 80 percent of data analyzed involved DC accounts. It excludes balances of less than $5,000, which lean disproportionately toward cashouts.

Read the entire article in the latest Defined Contribution eBook (June 15, 2011).

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