The great majority of retirement-age participants in employer-sponsored defined contribution plans leave those plans within five years of separation from their jobs, generally moving into an IRA rollover.
That's according to research from Vanguard, which found that after three years, only about 30 percent remain in their former employers' plans.
After five years, that drops to less than 20 percent.
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DC plan participants have several different options when they leave an employer:
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remain in the plan without starting installment payments
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remain in the plan but begin those payments
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take their assets in cash
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take a combination of actions
Vanguard looked at data for its DC recordkeeping clients from January 1, 2004, through December 31, 2014.
It found, among those who terminated in 2004 (representing the longest period of available data), the following:
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two thirds had kept their assets in a tax-deferred account through the end of 2014
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57 percent went to an IRA rollover
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another 7 percent stayed in their plan and took payments
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2 percent stayed in the plan but took no payments
About 30 percent of the 2004 group cashed out, taking either all their assets or more than 80 percent. That accounted for 5 percent of assets.
Year by year, the other plan participants pretty much followed the same behavior, although, taking into account the shorter time periods till 2014, a greater proportion of them (and their assets) remained in employers' plans.
Among those who left the job in 2013, for instance, 25 percent stayed in the plan, compared with 2 percent of the 2004 group; and just 50 percent rolled over into an IRA compared with 57 percent of the 2004 group.
In addition, the group cashing out altogether "drift[s] up by several percentage points over time."
Vanguard noted that, despite the financial crisis of 2008–2009, with stock prices falling substantially, cash-out rates weren't substantially different than for those who left their jobs and cashed out earlier on.
"At least in this analysis," the study said, "the great recession seems to have had little effect on plan distribution behavior among retirement-age participants."
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