March 2000

 

Rollover Rates

In 1998, almost one-half (48 percent) of all retirement distributions to job-changers (i.e., on job termination) were rolled over: 40 percent were rolled over to an individual retirement account (IRA) and 8 percent were rolled over into another tax-qualified plan. This is an increase from the 40 percent rollover rates in 1996 and 35 percent in 1993 (chart 1).

The data used in this fact sheet are from Hewitt Associates, a benefits consulting firm. The 1998 Hewitt database consisted of 33,317 distributions that went to workers upon job termination (i.e., to job-changers), and these distributions totaled $1.2 billion (for an average distribution of $34,671). The number of observations available for 1996 and 1993 were larger, although the amounts distributed were smaller. The 1996 Hewitt database contained 71,736 distributions totaling $1.3 billion (for an average distribution of $18,313). The 1993 Hewitt database contained 117,781 distributions to job-changers, totaling $1.6 billion (for an average distribution of $13,936).

The data show that rollover propensities increase with the size of the distribution, i.e., the larger the distribution, the more likely it will be preserved in a tax-qualified vehicle. In 1998, 23 percent of distributions of less than $3,500 were rolled over, compared with 92 percent of distributions larger than $100,000. Analogous findings emerge when the analysis focuses on the dollars distributed. Among distributions of less than $3,500, 31 percent of the dollars were rolled over, while among distributions of greater than $100,000, 92 percent of the dollars were preserved via rollover (chart 2).

The likelihood of rollover is also positively correlated with the recipient's age. In 1998, 33 percent of all distributions made to workers in their 20s were rolled over into IRAs or other tax-qualified saving vehicles. This rollover rate increased steadily to 60 percent for recipients in their 50s (chart 3).

 

Sixty-four percent of the dollars distributed to recipients in their 20s were rolled over. This figure increased to 89 percent for workers in their 50s.

The increased propensity to roll over retirement plan distributions upon job change during the 1993-1998 period was driven by those receiving smaller distributions (account balances of less than $10,000). The fraction of those receiving a distribution of less than $3,500 who chose to roll it over rose from 17 percent to 23 percent during that period. Among those with a distribution between $3,500 and $5,000, 30 percent chose to roll it over in 1993, compared with 40 percent in 1998. For distributions between $5,000 and $10,000, 39 percent were rolled over in 1993, compared with 42 percent in 1998. The same trend emerges when the fraction of dollars distributed is examined over time.

For more information, contact Ken McDonnell, (202) 775-6342, or see EBRI's Web site at www.ebri.org.

Source: EBRI Databook on Employee Benefits, fourth edition, 1997.

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