Consolidation Corner

Automatic Cash-Outs Undermine Efforts to Enhance Financial Wellness

Posted by Spencer Williams on Apr 26, 2017 12:49:48 PM

 

In the spirit of Financial Literacy Month, retirement plan sponsors are to be commended for their commitment to enhance financial wellness among participants. In fact, 76% of employers offer financial health programs for employees, according to the seventh annual survey on corporate health and well-being conducted by Fidelity Investments and the National Business Group on Health® in 2016.

Financial wellness programs are an important and valuable benefit because many working Americans have significant financial worries. According to the results of a Fidelity Workplace Investing survey conducted last year, 29% of Generation-Xers and 24% of Millennials are concerned about making ends meet all the time. Furthermore, 38% of Gen-Xers and 25% of Millennials spend $2,000 or more on debt every month.

However, by automatically cashing out terminated participants with less than $1,000, sponsors seriously undermine their own efforts and send a contradictory message that retirement savings are only worth preserving if the balance is above a certain amount. In wellness terms, prematurely cashing out is the equivalent of going out for two Big Macs, an apple pie and a large milkshake right after running three miles on the treadmill at the gym, and is clearly the worst decision a participant can make regarding their retirement savings. And it is a widespread problem. The Plan Sponsor Council of America’s 58th Annual Survey of Profit Sharing and 401(k) Plans reports that 88.7% of defined contribution plans automatically cash out stranded accounts with balances below $1,000.

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Topics: EBN, Auto Portability, 401(k) Consolidation, Retirement Plan Portability, Retirement Savings Portability

Why America’s Retirement Savings Needs Recycling

Posted by Thomas Hawkins on Apr 24, 2017 10:58:04 AM

 

As we marked the 47th annual Earth Day on April 22nd, we were once again reminded of the need to protect our environment. This heightened awareness is testament to how far Americans have come in both recognizing and curbing the wasteful, destructive behaviors that emerged in the decades following World War II. Those excesses have given rise to conservation and environmentalism, and were heralded by the first Earth Day in 1970. 

 

Today’s Wasteful Behavior: Cash Out Leakage

 

While we may be more environmentally-conscious these days, we don’t apply the same principles financially. There is a highly-wasteful and harmful behavior that silently robs millions of the prospect for a comfortable or timely retirement. Every year, millions of Americans will needlessly cash out their retirement savings after changing jobs, converting these savings into wasted consumption and avoidable tax penalties.


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Topics: Auto Portability, Safe Harbor IRA, Automatic Rollovers, Cash Outs, America's Mobile Workforce, Automatic Rollover, auto portability simulation, National Retirement Savings Cash Out Clock

New EBRI Research Finds $2T Saved From Automated Portability

Posted by Neal Ringquist on Apr 19, 2017 8:05:00 AM

As much as $2 trillion could be retained in the U.S. retirement systems if Auto Portability were fully implemented, according to new research by the Employee Benefit Research Institute (EBRI). The research establishes Auto Portability as a leading retirement industry public policy initiative, placing it ahead of auto IRA initiatives and just behind universal DC coverage in terms of impact on total retirement savings shortfall.

 

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Topics: Auto Portability, 401(k) Consolidation, Auto Enrollment, Automatic Rollover

Financial Wellness Requires Mending Fractured Retirement Savings

Posted by Spencer Williams on Apr 6, 2017 11:03:13 AM

 

If you’ve ever broken a bone—playing sports, engaging in outdoor activities, or even just from a slip and fall—it doesn’t take long before the pain signals that you need to go see a doctor, and the sooner the better. The friction encountered while moving a retirement savings account from an old-employer plan to a current-employer plan when changing jobs sends similar pain signals through most participants. With the Employee Benefit Research Institute (EBRI) indicating that the average participant will have 7.4 jobs in their adult working career, the risk of participants incurring a fracture in their retirement savings is very high.

Given the complex and time-consuming nature of DIY plan-to-plan portability, it’s no wonder so many Americans find cashing out or stranding their 401(k) accounts to be the easiest option when they change jobs. As reported in Boston Research Technologies’ 2015 Mobile Workforce research study, a majority of participants responded that it would take more than 10 hours of their personal time to complete a roll-in, and they valued that time at well over $500!!

With millions of Americans suffering from fractured retirement savings, plan sponsors should take the initiative—and fulfill their fiduciary duty—by providing restorative care to their participants and eliminating obstacles to seamless retirement savings portability.

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Topics: EBN, Auto Portability, 401(k) Consolidation, Retirement Plan Portability, Retirement Savings Portability

The African-American Retirement Crisis: How Auto Portability Can Help

Posted by Thomas Hawkins on Mar 30, 2017 4:11:40 PM


Today, many Americans are hard-pressed to set aside enough savings for a timely or comfortable retirement.   The factors most-often cited as driving the coming “retirement crisis” include longer life expectancies, rising healthcare costs and stagnant incomes. 

 

The African-American community faces these same challenges plus other economic headwinds, but with larger hurdles to overcome to secure a comfortable retirement.   Nowhere is this more apparent than in America’s defined contribution system, where African-Americans are confronted by: 

  1. Lower overall use of employer-sponsored plans. In 2013, only 41% of African-American families had retirement savings accounts, vs. 65% of white, non-Hispanic families. 
  1. Lower levels of plan enrollment and contribution rates, including:

-  68% average plan enrollment, vs. 79% for white participants

-  2% lower contribution rates, vs. white participants

  1. Unfavorable demographic, economic and work-related factors. Compared against their white counterparts, the average African-American plan participant is 14% younger, has 10% less job tenure, earns 30% lower average salary and has 28.4% higher job turnover.
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Topics: Auto Portability, Safe Harbor IRA, Automatic Rollovers, Cash Outs, America's Mobile Workforce, Automatic Rollover, auto portability simulation

March 30th Washington DC Forum to Showcase Retirement Plan Portability & Public Policy

Posted by Thomas Johnson on Mar 23, 2017 6:34:27 AM

 

An upcoming event in Washington, DC, to be held on March 30th and hosted by the Financial Services Roundtable, promises to be both highly-interesting and informative, addressing the very latest in retirement plan portability research and development.

 

The event, Retirement Plan Portability & Public Policy: Unlocking the potential in portability, will take place at the Financial Services Roundtable’s headquarters [map] from 10:30 a.m. to Noon, and is free to attend. To register, click here. Click here to view a full agenda.

 

The event features an all-star lineup of presenters, including:

 

Key topics include:

  • New research by the Employee Benefit Research Institute (EBRI) on the overall benefits of portability to America’s defined contribution system
  • The latest on Auto Portability, including:
    • Auto Portability Explained
    • The Auto Portability Advisory Opinion
    • An Auto Portability Progress Report
    • Auto Portability & the Future of Portability
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Topics: Auto Portability, 401(k) Consolidation, Plan Portability, America's Mobile Workforce, Retirement Plan Portability, Financial Services Roundtable

The Stealth Solution to America’s Retirement Savings Crisis

Posted by Neal Ringquist on Mar 14, 2017 8:30:00 AM

 

Over the past year, the Department of Labor’s Fiduciary Rule has been highly-visible, presenting major ramifications for the retirement industry and looming large on the radar screens of retirement services providers.  

 

The underlying rationale for the rule, as stated by the Obama administration in an April 6, 2016 press briefing, was to save retirement investors $17 billion per year in lost retirement savings that result from conflicts of interest in retirement advice. Certainly, anything that protects $17 billion in retirement savings is a worthy goal, if it helps more Americans meet their retirement income needs.

 

However, there’s a larger hole in our retirement system – cash-out leakage – that inflicts far greater harm to American retirement savers, yet this threat continues to fly beneath our collective radar.   

 

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Topics: Auto Portability, Mandatory Distributions, Automatic Rollovers, 401(k) Consolidation, Cash Outs, Auto Enrollment, Automatic Rollover

The Fundamentals of Locating Missing Participants

Posted by Thomas Hawkins on Mar 8, 2017 10:41:38 AM

This video presentation is designed to give the viewer a basic understanding of the principles of locating missing participants in 401(k) plans.

 

The video addresses the following key questions that plan sponsors have regarding the issue of locating missing participants:

  • What is a missing participant?
  • What causes missing participants?
  • Why is it important to locate missing participants?
  • What are the best practices for locating missing participants?
  • What should I look for in a missing participant locator service?

 

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Topics: Missing Participants, Lost Participants

Auto Portability Helps Everybody, and Hurts Nobody

Posted by Spencer Williams on Mar 2, 2017 8:24:27 AM

 


“So, whose ox are you goring with auto portability?”

 

This is what a senior, well-respected retirement policy official asked my team at a sit-down meeting in Washington, D.C. Over the course of her long career, she had heard innumerable proposals to correct the savings shortfall in the U.S. retirement system. Many of them had a downside for at least one constituency in the retirement services universe, and she assumed that auto portability had one too.


But after a bit of thought we answered, confidently and correctly, “No one’s ox.”


She couldn’t believe it, but auto portability—the routine, standardized and automated movement of a retirement plan participant’s 401(k) savings account from their former employer’s plan to an active account in their current employer’s plan—can help more Americans increase their retirement savings, and empower more sponsors to improve their plan performance metrics, without harming anyone.


And best of all, it can be implemented across the entire retirement system voluntarily, with little cost—and significant upside—to the private sector.

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Topics: EBN, Auto Portability, 401(k) Consolidation, Retirement Plan Portability, Retirement Savings Portability

Big Changes Coming for Small 401(k) Accounts

Posted by Thomas Hawkins on Feb 27, 2017 10:27:59 AM

 

The pace of change in today’s world is faster than ever -- and accelerating.  Consider the vast change witnessed by today’s centenarians over the course of their lives – moving from the horse-and-buggy to aviation, moon landings, the Internet and smartphones.

 

However, changes to America’s retirement system seem to unfold more slowly – sometimes moving at “the speed of retirement” – a glacial process driven by the moribund pace of legislation, further establishment of rules by regulatory agencies, the delivery of new features by service providers, eventual adoption by the plan sponsor community, and finally – by the individual actions of participants over the course of their working lives. 

 

Even truly transformative change, such as automatic enrollment and default investments such as target-date funds, took years to germinate before legislative action, in the form of the Pension Protection Act, provided the clarity that gave their adoption a needed jump start.

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Topics: Auto Portability, Safe Harbor IRA, Automatic Rollovers, Cash Outs, America's Mobile Workforce, Boston Research Technologies, Automatic Rollover, auto portability simulation

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