When workers change jobs, an increasing number appear to be leaving their retirement savings intact, according to new research by the nonprofit Employee Benefit Research Institute (EBRI).
Using recently released U.S. Census Bureau data, EBRI analyzed how workers take lump-sum distributions from their 401(k) or other defined contribution retirement plans when they change jobs. The analysis, “Lump-Sum Distributions at Job Change, Distributions Through 2012,” appears in the November EBRI Notes.
When retiring or changing jobs, people generally have several options for their retirement account:
- Leave the money in their current plan.
- Cash it out (to spend it or to invest/save it in a different manner than through a tax-qualified savings vehicle).
- Some combination of the above.
The percentage of lump-sum recipients who used the entire amount of their most recent distribution for tax-qualified savings has increased sharply since 1993; well over 4 in 10 of those who received their most recent distribution through 2012 did so, compared with 19.3 percent of those who received their most recent distribution through 1993.
Furthermore, just 7.5 percent of recipients who received their most recent distribution through 2012 spent it entirely on consumption, compared with 22.7 percent of those who received a distribution through 1993.
The research also revealed that:
- The average amount of lump-sum distribution in 2012 dollars was $20,781, with a median (mid-point) amount of $12,355.
- Recipients who did not use their lump-sum distribution for tax-qualified savings were more likely to use it to improve their financial condition, paying down debt or buying a home, rather than spending it on pure consumption.
“What workers choose to do with their retirement plan assets on changing jobs can profoundly affect their financial resources in retirement, particularly in the case of younger workers and those with large balances,” said Craig Copeland, senior research associate at EBRI and author of the report, in a posting on the EBRI website. “While improvement has been made in the percentage of employment-based retirement-plan participants rolling over all of their balances on job change, this behavior varied significantly across participants’ ages at the point of distribution and the amount of the distribution.”
Participation Rates Generally Stable
The number of workers participating in an employment-based retirement plan has increased slightly, although the level of participation (dollars contributed) is down slightly, according to a separate EBRI Issue Brief, "Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2012."
“The current economic environment is likely to result in 2013 participation numbers that are very similar to 2012 with the potential for a slight increase, though many other underlying factors will continue to affect the future direction of this trend,” Copeland wrote.
Among the report's findings:
- Those working for smaller firms, private-sector firms or firms in the “other” (not professional) services industry were less likely to participate in a plan than their comparison groups.
- Geographic location also affects the likelihood of employees to participate in a retirement plan. Workers in the South and West were less likely to participate in a plan than those in other regions of the country.
- Non-native-born Hispanics had substantially lower participation levels than native-born Hispanics, even when controlling for age and earnings. Black and native-born Hispanic workers had participation levels much closer to those of white workers within each age group.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Compensation & Benefits e-Newsletter
To subscribe to SHRM's weekly Compensation & Benefits e-newsletter, click the link above. To see all of the SHRM e-newsletters, click below.
Sign Up Now