Farrell: When you retire, should you keep your money with your employer's 401(k) plan?

Should I stay or should I go? When does it make sense for retirees to keep their savings in their employer's plan and when is it better to transfer the money into an IRA?

I've long thought putting the savings into an individual retirement account, or IRA, at retirement was the more savvy choice. It wasn't a mistake to leave savings in an employer's 401(k). But making a tax-sheltered transfer of the 401(k) money into an IRA meant that you were in control, and you got to choose the best investment options for your circumstances.

I'm revisiting the topic because recent studies offer good reasons for sticking with an employer's plan. Pew Charitable Trust reports that shifting money from a lower-fee employer plan (taking advantage of institutional rates) into similar investments in an IRA (and higher charges for retail customers) can "translate into significantly higher costs for retail investors, costs that can eat into their long-term savings significantly."

Another research paper by economists Olivia Mitchell, John Turner and Catherine Reilly makes a strong case for the typical worker to stay with their 401(k)s. The plan sponsors of the 401(k)s are fiduciaries, meaning they have a legal obligation to act in participants' best interests. Large company plans come with lower fees than the typical IRA. A growing number of plans offer participants the option of turning their savings into a stream of income during retirement.

There are circumstances when it pays to shift money into an IRA, they add. If your employer's plan comes with high fees, for one. Another reason is if you've accumulated several 401(k)s at previous employers and you'd like to consolidate them. An IRA works better for those needing sophisticated financial options.

"IRAs offer many valuable features, particularly for participants with sophisticated advice and investment needs," writes Reilly in a blog post summary. "Unless retirees are in very high-cost small plans, those with low/moderate levels of financial literacy are likely to benefit from remaining in their 401(k)s plan even after leaving their jobs."

By the way, don't be insulted by being labeled with low-to-moderate levels of financial literacy. That's most of us!

The case for sticking with your employer's plan is better than I thought. That said, it's troubling that coming up with a good answer puts additional research demands on savers. There isn't an easy rule of thumb to follow.

Chris Farrell is senior economics contributor, "Marketplace"; commentator, Minnesota Public Radio.