Asset Consolidation: Helping Participants Help Themselves

Those of us operating in the retirement space understand that workforce dynamics are always shifting. As people live longer and change jobs more often, plan sponsors and participants may be facing additional considerations with respect to retirement assets and their management. 

Over the past 40 years, the average American lifespan has increased from just under 75½ to about 79¼. And while  people are working longer, they’re also changing jobs more often — on average about every four years. Looking even further out, more than 4 million Americans will be retiring each year between now and 2027 — in excess of 11,000 every day. Gone is the era when people remained with one or two employers over the course of their careers.

This resulting workforce demographic transition is bringing challenges for participants and plan sponsors alike. One of the most significant byproducts of the “multiple jobs in a lifetime trend” is the substantial number of 401(k), 403(b) and other defined contribution retirement plans that will require administration. Many of these are from retirement accounts that have been forgotten or left behind with previous employers.

In addition, upwards of 70% of all defined contribution plans over $50 million use auto-enrollment — potentially a double-edged sword. While this feature has spurred more employees to participate in employer retirement plans, we find it often leads to a lack of active participant engagement. 

Heightened awareness for the participant and the plan sponsor 

Clearly, it is important for participants to fully understand their plan — and know where they reside — to realize all available options to them and maximize their retirement savings. It is also incumbent upon plan sponsors to do the same. This can help address the lack of participant engagement and reduce additional expenses and administrative burden associated with forgotten or left behind plans. 

Accounts remaining in the plan must be tracked and certain notices be provided. Additionally, tracking accounts and providing notices are fiduciary responsibilities that become increasingly difficult if former employees or their plans cannot be located. 

The additional impact of failing to meet those fiduciary responsibilities may lead to plan audits, penalties, and possible legal action. Employers may also face expenses associated with missing participant searches, uncashed checks, and extra mailing costs.

Helping foster asset consolidation

As a result, there is an increasing push for plan sponsors to continually encourage the importance of asset consolidation. Consolidation is a cost-effective way to increase participants’ average account balances and reduce the incidence of stranded accounts and cash-outs. 

Another key reason to support asset consolidation: it helps participants realize the full potential of the money they have put aside for their golden years, enabling: 

• Enhanced retirement portfolio performance
• Increased ease of asset allocation 
• Streamlining of financial planning efforts
• Easier adjustment of investments, as personal situations and goals may change 
• Reduction of fees

Importantly, consolidation can also identify imbalances and disparities in retirement portfolios and help align retirees’ savings goals. This becomes especially crucial when a participant becomes mentally or physically unable to manage his or her finances.

At the end of the day, participants are seeking retirement assistance from plan sponsors. In fact, recent research by nonprofit Transamerica Center for Retirement Studies found that 66% of employees want more information and advice from their employer about reaching their retirement goals. 

Employers use a variety of tools to attract and retain top talent (salary, bonuses, strong healthcare options, and extensive PTO time, among others). But offering a robust 401(k) or 403(b) plan to help them reach a secure retirement is arguably the most essential. That’s why it’s paramount for plan sponsors to support participants as they make major decisions regarding an old plan account — decisions that will have lasting impacts.

By ensuring participants have the accurate information they need and making it even easier for them to act, plan sponsors can provide a better, simpler path to a brighter retirement outcome.

For more information on asset consolidation, please download Transamerica’s report, Stronger Together.

About the author

Josh Rundle is Head of Retirement Solutions for Transamerica, a leading provider of life insurance, retirement and investment solutions, serving millions of customers throughout the United States.

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