By ANNA PRIOR
While the country's job situation remains stuck in a rut, many Americans are still unsure what to do with something they left behind (along with their favorite coffee mug) at their prerecession employer. We're talking, naturally, about their 401(k) plan. The number of departing employees choosing to leave their retirement plans as is -- that is to say, neither cashing them out nor transferring the savings into a new plan -- has been growing steadily for years. Consider, for example, the retirement assets administered by Vanguard: The share of participants choosing to remain in a former employer's plan rose from 49 percent in 2000 to 65 percent in 2010. Now those returning to the workforce are faced with a crucial retirement savings question: To roll or not to roll?
Figuring out the answer can be tricky, advisers say. The desire to have all the pieces of a nest egg in one place is only natural. Plus, many brokers and others in the retirement-planning business advertise the virtues of consolidating far-flung retirement accounts. "Financial-services companies would love to get me to roll over my money and get it under their roof," says Francis Vitagliano, a researcher at the Center for Retirement Research at Boston College. However, the best option for many people, say advisers, might not be the obvious one.
While perhaps counterintuitive, many pros say the "lazy choice" could indeed be the right one -- and that is to leave the money in your former employer's plan. For one thing, it's likely to be cheaper than rolling it into an individual retirement account. The fees for 401(k) plans at large employers are about a third of what they'd be in a comparable IRA, says Kristi Mitchem, senior managing director and head of global defined contribution for State Street Global Advisors. Investors in large plans also have the benefit of a fiduciary who manages the plan and, at least in theory, picks the best products for participants. There is also at least one investment choice specific to 401(k)s: the stable value fund. This is similar to a money market fund in an IRA, and though some experts caution that they aren't risk-proof, their yields are higher -- recently averaging nearly 2.8 percent, compared with less than 1 percent for most money market funds.
Of course, there are some hazards to watch out for. If you have switched jobs often in recent years, experts say, the inevitable paperwork chaos can be reason enough to roll over assets into one centralized retirement savings vehicle. Additionally, IRAs tend to offer a wider array of investment choices -- an attractive feature, especially for investors in a less-robust plan, like those often found at smaller companies. In the end, the right decision depends on each individual's situation. That's why experts such as David Wray, of the Profit Sharing/401k Council of America, suggest investors weigh both options carefully. Says Wray: "There's no universal right answer."