5-Year Rollover Glut Has Swelled IRA Balances: Cerulli

What You Need to Know

Big market gains from 2016 to 2021 led to higher account balances.
Cerulli expects the Secure 2.0 Act to buoy the rollover market as the law expands workplace plan participation.
Conversely, the proliferation of in-plan income solutions could lead more workers to leave assets in plans.

The exceptional capital market performance experienced between 2016 and 2021 translated to significantly higher average 401(k) account balances, which in turn drove a groundswell of rollovers into individual retirement accounts.

This is one of the headline findings of the newly published Cerulli Report, “U.S. Retirement Markets 2022: The Role of Workplace Retirement Plans in the War for Talent.” According to Cerulli, the rush of rollovers was concentrated among higher-balance participants nearing retirement, and the level of IRA assets reached nearly $14 trillion as of the end of 2021.

While the sharp market downturn in 2022 and early 2023 has placed downward pressure on IRA rollover balances, other factors appear set to buoy the rollover market. In particular, Cerulli’s analysis finds the automatic enrollment and automatic deferral escalation provisions in the recently enacted Secure 2.0 Act will likely facilitate stronger 401(k) plan contribution growth in the years ahead, leading to a strong pace of rollovers.

More Plans, More Rollovers

Sources say the Secure 2.0 Act includes a variety of features that should increase both the number of workers investing in 401(k) plans and the overall amount of assets flowing into such plans.

For example, the new “Starter 401(k)” provision could be a real game changer in the context of advisors serving small-business owner clients who lack a retirement plan. Put simply, Starter 401(k)s will allow these small businesses to deliver a useful retirement solution to employees while keeping both liability and costs down.

Another key feature in the law is the creation of a national lost and found registry and system for retirement account identification. There is a good chance that most Americans who are approaching retirement have pools of wealth spread around multiple recordkeeping platforms from their prior employers. This new system, once up and running, will help people get all their retirement ducks in a row, potentially facilitating a greater number of rollovers.

Yet another upside of the Secure 2.0 Act for small businesses is expanded tax benefits associated with launching a new retirement plan. Previously, companies with fewer than 50 employees could receive a tax credit equal to 50% of administrative costs, capped at $5,000 annually, when they started a retirement plan. Under the Secure 2.0 Act, however, the 50% credit has been increased to 100%, and businesses with up to 100 employees qualify.