Investors seeking retirement plan rollovers have long been one of the main sources of prospective clients for financial advisors. But retirees’ desire to roll over their assets to advisors is on the wane, according to a growing body of research

“For many employees, what to do with a 401(k) plan at retirement has been a foregone conclusion: Roll it over,” wrote Christine Benz, director of personal finance and retirement planning for Morningstar, in a recent blog.

Financial advisors have reinforced that trend, with rollovers from 401(k)s to IRAs “bringing a juicy source of advisor revenue year after year,” Benz said.

But now, that trend may be reversing, she added.

Some 42% of defined contribution plan participants stayed invested in their plan three years after retirement, J.P. Morgan found in a recent study. That 42% is double the number of retirees who decided to stay put just 10 years ago.

According to a T. Rowe Price survey of 3,016 retirement plan participants, 83% of 401(k) participants expressed interest in staying put in their current 401(k) plan, while 53% said they would consider keeping their savings in their employer plan if it offered vehicles such as in-plan annuities to help generate income during retirement.

A survey from Pew Institute found a similar story: 35% of near-retirees reported that they intended to keep their retirement assets invested in their existing plan after retirement. Participants said plan investment options, lower fees and investing convenience were all primary reasons for their decision to stay put.

The 401(k) plan providers, of course, want to hold on to those assets, which are the bread and butter of their profit stream. Employers also like to retain plan participants and assets, since it can reduce their plan fees. Plans and employers are recognizing that losing those assets could affect the size of the plan and reduce economies of scale. One of the top reasons plan sponsors want to keep retirees in their plans is that bigger plans have significantly more leverage to negotiate with financial firms that provide plan services. Bigger scale means lower fees, Pimco said.

Those motivations, combined with an increasing sentiment among retiring investors to stick with the plans, is a phenomenon that should worry advisors.

According to research from Pimco, about three-fourths of large 401(k) plan sponsors would now prefer to keep the assets of retired employees in the plan, rather than have retirees roll over their plan assets into an individual retirement account (IRA), according to 47 advisor firms that serve 33,000 employers. The survey resulted in a few discoveries:

  • An increasing number of plans are actively seeking to retain retirees’ assets—36%, up from 14% in Pimco’s 2015 survey.
  • The number of plans that prefer to move retiree assets out has fallen drastically—7% down from 17%.

Advisors who work directly with the plans themselves are recommending they add flexible and tax-efficient income distribution features so retirees don’t face administrative hurdles when withdrawing funds, Pimco reported. Plans are also adding retirement education and online tools so retirees can calculate their safe withdrawal levels to manage the risk of depleting funds, according to Pimco.

Advisors are also recommending adding standard and timely participant communication to underscore the value of staying put in plans, such as having plan fiduciaries select investment options that are in participants' best interest, Pimco said. 

At the same time, the SECURE Act of 2020 has for the first time allowed plans to add in-plan annuities with guaranteed lifetime payouts, which allow investors to shift from savings to distribution and protected income without leaving their existing plan.

Some 70% of non-retired plan participants said they would be somewhat or very likely to select an in-plan annuity for lifetime income, according to LIMRA’s 2023 “Retirement Investors Survey.”

While plans are just in the early stages of adopting in-plan annuities, interest is rising, said Bryan Hodgens, head of distribution, life and annuity research at LIMRA, in an online presentation the organization hosted in May titled “Are In-Plan Annuities At A Tipping Point?”