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Plan Distributions Are Being Saved

In recent years, plan sponsors and the retirement plan industry have been increasingly concerned about the rising number of plan participants terminating employment who take their 401(k) account distribution in cash, since many of those dollars will not find their way into other retirement saving arrangements. Two new studies indicate that there is reason to be more optimistic today about those disappearing retirement savings dollars.

The Vanguard Center for Retirement Research has found that retirement-age defined contribution plan participants are preserving their assets at an encouraging rate. About 70% of participants had preserved their savings in a tax-deferred arrangement for at least five years after terminating employment.

The study of 267,000 participants age 60 or older who terminated employment in 2004 through 2011 also revealed that 90% of the dollars saved in a retirement plan were preserved, either in an employer-sponsored plan (35%) or an IRA (55%).

Small accounts cashed out

Around 30% of retirement-age participants who took cash distributions after terminating employment usually had small account balances. The average amount cashed out was about $20,000.

Participants who preserved their savings had average balances ranging from $150,000 to $225,000.

Most assets leave the plan over time

Although nearly three-quarters of retirement-age participants kept their retirement savings intact, only about 20% of these employees still had plan account balances five years after termination. And only 20% of assets remained in the employer-sponsored plan after five years.

Vanguard’s report, Retirement Distribution Decisions Among DC Participants, is at

EBRI analysis had similar findings

The Employee Benefit Research Institute (EBRI) studied lump-sum distributions of retirement saving plan account balances across a broader range of participants (those who reported ever having received a distribution). The researchers obtained results similar to Vanguard’s: More workers seem to be saving, not spending, the distributions they receive from their retirement saving plans.

Half completed at least a partial rollover

Almost half of the group studied reported rolling over at least some of their most recent distribution to a new employer-sponsored plan or an IRA. Nearly all of these participants rolled over the entire amount.

Less than 16% reported using some of their distribution for consumption (for example, paying bills, major purchases, etc.). Only 7% said they used the entire amount for consumption.

EBRI’s Lump-Sum Distributions at Job Change, Distributions Through 2012, is available at

What are the top 10 steps you, as a plan sponsor, want to take this year regarding your company’s retirement plan? See Mercer’s list at

For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.

Kmotion, Inc., P.O. Box 1456, Tualatin, OR 97062; 877-306-5055;

© 2014 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.