401(k) Rollovers Present a Golden Opportunity

Dan Schreiber, Added Dimensions - CUNA Mutual
May 27, 2005

As baby boomers begin to roll their 401(k) plans into individual retirement accounts, many of them are doing it without the advice of a financial advisor, according to a study by Bain & Company, a Boston consulting firm.

As credit union members reach their golden years, it's a golden opportunity to show them the advantages of using a financial advisor to guide investments. If your credit union has financial services reps, make sure they're available to help with 401(k) rollovers. If you don't have a financial services program, the demographics, taken from surveys by business consultants LIMRA and Bain & Company, tell a compelling story about the potential need:

• More than 77 million baby boomers are expected to retire in the next 15 years.
• In 2005, about $250 billion will be moved from 401(k) plans into IRAs.
• Between 2003 and 2010, $2.4 trillion—roughly the annual GDP of Germany—will be rolled into IRAs.
• Affluent boomers (those individuals between the ages of 55 and 70 with annual income of at least $100,000) will account for one-half of the rollover assets.
• 70% of affluent boomers have or will move money from their 401(k) into an IRA. Of those, 84% use a financial advisor, but only 12% of financial advisors prompt them into an IRA rollover. That's an opportunity waiting to be filled.
• 50% of affluent boomers want the convenience of getting their financial asset management from one source. In addition to investments, other needs include handling property, life insurance, and health insurance.
• 50% of those who rolled out of current plans purchased other financial products. That presents an opportunity for an estimated $19 billion to $38 billion in incremental assets over the next five years.

The federal bankruptcy law enacted in April eliminated one of the few potential drawbacks of IRAs, which unlike 401(k) and other qualified pension plans, were not federally protected during individual bankruptcies. The new law, however, protects regular contributions made to IRAs up to $1 million and offers unlimited protection of rollovers made into IRAs from 401(k) or other qualified pension plans.

Retirements are becoming a key time of access to individuals, when a financial institution can capture a share of the rollover and investment assets. By offering financial services and educating the boomers to the advantages of IRAs, credit unions will keep their members and their money.

Dan Schreiber is a MEMBERS products retirement plan marketer for CUNA Mutual Group. This story first appeared in CUNA Mutual Group’s online publication called Added Dimensions at http://www.cunamutual.com/cmg/addedDimensions/ home/0,1775,9057,00.htmland is reprinted with permission.