There is no uniform practice on this. Many parishes dismiss both the catechumens and the baptized candidates. However, my preference is to only dismiss the unbaptized. I agree with your pastor that baptized people should remain in the assembly for the entire liturgy. The reason I believe this is because there is more to Eucharist than communion. Even though the baptized candidates cannot receive communion, they can, and should, participate in the offering the sacrifice through their participation in the Liturgy of the Eucharist. This is as catechetical as breaking open the word would be.
The reason we dismiss catechumens is not simply to give them more time for breaking open the word or for catechesis. It is because they are not yet members of the Order of the Faithful and therefore cannot yet offer the sacrifice of the Mass through their prayer. In addition, by dismissing the unbaptized and keeping the baptized in the liturgy, we are also catechizing the rest of the assembly about the importance and dignity of baptism.
The actual texts of the RCIA would seem to support this. If you look at the combined rites that include both catechumens and baptized candidates, only the catechumens are dismissed. See, for example, paragraphs 527-529, 544-546, and 559-561.
Posted in: Dismissal