Best retirement moves most do not make

Best retirement move almost nobody makes

Experts say more savers should roll plans into their new job’s 401(k)

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By Ian Salisbury

When it comes to rolling over retirement accounts, a new government report suggests that job switchers are ignoring what may be their best option: Pouring savings into a new employer’s 401(k).

For many investors, the term “rollover” is synonymous with moving money from an employer-sponsored plan like a 401(k) into an individual retirement account. But it is also an option to move those assets sitting in an old 401(k)—or other defined-contribution plan like a 403(b)—into a similar plan at the new job.
New research from Congress’s investigative arm, the Government Accountability Office, suggests that paperwork hassles and a hard sell from IRA providers mean investors too frequently overlook the latter option. “It’s unnecessarily hard to do the right thing,” says Alison Borland, a retirement strategist at benefits company Aon Hewitt, which estimates that investors roll $9 into IRAs for every $1 that goes into a new 401(k).

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Investing pros agree that cashing out retirement savings is almost never wise. But there are benefits to both of the other alternatives: IRAs typically offer a wider range of investment options, while 401(k) plans offer lower costs, particularly if they are sponsored by a big employer.
Those cost savings can be significant in the long run.
Retirement savers in retail mutual funds—the type widely available in IRAs—pay annual fees averaging $101 per $10,000 invested, roughly double what investors in big 401(k)s pay, according to investment consultant Callan. Such differences can compound into thousands of dollars in lost retirement income after decades of saving, according to Callan’s defined-contribution practice leader, Lori Lucas. “I don’t think participants really understand the cost advantages,” she says.
What makes IRAs so popular? One big factor, according to the GAO report, is aggressive industry marketing, including sales pitches delivered through “educational” 401(k) materials and misinformation delivered by call-center representatives. Kent Mason, a Washington lawyer who represents retirement vendors, concedes some problems but notes that sales people whose tactics cross the line are not unique to investment companies. “It happens in all walks of life,” he says.

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Best retirement move almost nobody makes

A lot of job-switchers are ignoring what may be one of the best options to get the most out of their retirement: Moving their savings into their new employer's 401(k). MarketWatch's Jim Jelter explains the benefits. (Photo: AP)

The report also notes that new employers are sometimes indifferent to processing rollovers because they must confirm that the money comes from another qualified plan. That means extra paperwork and, in theory, penalties if they foul it up. As a result, experts say savers often get less handholding with 401(k) rollovers than they do with the IRA variety, where vendors are hungry for new customers.
Those happy with their old employer’s 401(k) plan typically have the option to keep the money there. But those who want to consolidate their savings should consider putting in the extra work to roll the funds into the new employer’s 401(k), according to Kevin Chisholm, associate director at investment industry researcher Cerulli Associates. “It will be well worth your time,” he says.