|Take it or Leave it? The Disposition of DC Accounts: Who Rolls Over into an IRA? Who Leaves Money in the Plan and Who Withdraws Cash?
|Year of Publication
|Demographics, Employment and Labor Force, Pensions
A worker s disposition of his or her defined contribution (DC) retirement account balances at the point of separation from a previous employer is one of the most important decisions a DC plan participant faces. Although this decision has important implications for the retirement security of workers, the literature on this subject is relatively small. This paper uses Health and Retirement Study (HRS) data to analyze the use of DC accounts for a group of workers age 50 or above, and finds a number of notable results and trends. First, leaving the money in the prior plan was the most common outcome for those who remain in the labor force after leaving a job. Second, a decision to take cash out of accumulated savings declined with higher account balances, higher incomes, existing ownership of an IRA, and higher financial wealth. The decision to cash out also rose with debt levels. Third, the decision to roll over those DC distributions to an IRA is the mirror image of the characteristics influencing cash withdrawals. Rollover decisions increased with higher account balances, higher incomes, previous ownership of an IRA account, and greater financial wealth. They also declined with higher debt. There is, however, no clear trend with respect to the above-mentioned financial variables and the decision to leave those DC balances in the prior employer plans. This suggests that there may be behavioral factors, such as inertia, driving what might be seen as a non-decision. It may also be the case that people are deferring the decision until they need the money. In terms of demographic characteristics, no significant difference was found between men and women in terms of their DC account outcome choices. Married or partnered individuals were less likely to withdraw their assets and more likely to roll them over into an IRA than singles, but the differences were small.
Defined contribution plans/Demographics/Employment-based benefits/Individual retirement account rollovers/Individual retirement accounts (IRAs)/Labor force/Lump-sum distributions/Pension plan distributions