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Consolidation Corner Blog
Consolidation Corner is the Retirement Clearinghouse (RCH) blog, and features the latest articles and bylines from our executives, addressing important retirement savings portability topics.
Six Steps to a Strong Missing Participant Policy
Missing participants, defined as individuals who have become disconnected from their retirement savings – often through their own inaction – are a significant challenge that has long plagued defined contribution plans. Unfortunately, the responsibility for locating these persons falls squarely on the shoulders of plan sponsors.
This Earth Day, We are Reminded to Recycle 401(k) Savings, Instead of Adding to the Landfill of Safe Harbor IRAs
On April 22, we will celebrate the 54th annual Earth Day, which gives us the opportunity to celebrate our planet’s natural surroundings and contemplate how we can help preserve them. The advent, and ongoing expansion of recycling programs has enabled our society to reduce our waste—and although there is still quite a long way to go, we have evolved significantly from the post-World War II throwaway culture.
A More-Enlightened Approach to Uncashed Distribution Checks
No retirement plan sponsor likes the idea of dealing with uncashed distribution checks, nor do they wish to draw unwanted regulatory attention or to become embroiled in costly litigation because of their uncashed check policies.
Unfortunately, many plan sponsors place themselves in precisely that spot, becoming unnecessarily over-burdened with unresolved uncashed checks, while inviting unwanted regulatory scrutiny and/or legal challenges by embracing flawed uncashed check policies.
A more-enlightened approach to managing the problem of uncashed checks seeks to minimize their numbers, while simultaneously steering clear of the “red flags” that could land them in hot water.
Four Retirement Initiatives Vital to Closing the Racial Wealth Gap
Policymakers and stakeholders in America’s defined contribution system have made important progress in advancing initiatives that could help to close the large racial wealth gap. While much of the groundwork has been laid, it will ultimately fall to retirement plan sponsors to make the difference by supporting four key retirement initiatives that will generate increased wealth and enhance retirement security for millions of America’s minority workers.
Four Key Findings from the New Auto Portability Simulation
On the heels of the 11/7/23 announcement by the Portability Services Network that the industry-led consortium has launched its digital auto portability solution powered by Retirement Clearinghouse (RCH), RCH has made available the results from a new version of their Auto Portability Simulation (APS), a discrete event simulation that models the adoption of auto portability within America’s defined contribution system, over a 40-year period.
Auto Portability is Poised to Make an Even Bigger Impact in 2024
On the last day of 2023, a key provision of the SECURE 2.0 Act—increasing the limit on small 401(k) accounts subject to automatic rollovers into safe-harbor IRAs from $5,000 to $7,000—went into effect.
Auto Portability: It’s About the Participants
It’s sometimes easy to forget a basic tenet about auto portability.
Auto portability is about the participants.
And not just any participants. Auto portability is about the participants who truly need it, and – according to multiple surveys – have expressed a strong preference for it.
No One is Coming to Save You From Missing Participants
In horror movies, embattled humans facing a zombie apocalypse eventually realize that no one is coming to save them and must take decisive action to save themselves from oblivion.
There’s a lesson here for plan sponsors who must confront the problem of locating missing participants.
In the near-term, there’s likely nothing that will spare plan sponsors from addressing the missing participant problem head-on. In the face of uncertainty, they must take decisive action to avoid being overwhelmed, including implementing effective, common-sense search practices, and pairing those search practices with other actions that will minimize the incidence of missing participants over time.
A Perfect Storm is Brewing—But Automated Portability Could Defuse It
Focus Shifts to Plan Sponsors as Portability Network Set to Go Live
When the Portability Services Network (PSN) goes live at the beginning of the fourth quarter of 2023, the focus of attention for auto portability will shift from the industry-led network of service providers to the leading plan sponsors who will begin adopting the new plan feature.
As PSN operations commence, and the automated plan-to-plan consolidation of small balances begins, a familiar industry adoption pattern will emerge – where innovators within the plan sponsor community lead the charge and are quickly followed by others.
It’s The Final Countdown for 401(k) Plan Terminations
As we draw nearer to the 4th quarter of every year, many plan sponsors – for a variety of reasons – are faced with the prospect of a 401(k) plan termination. For most, this will be the first -- and only -- time that they’ll undertake this important project.
If you’re facing a plan termination in the current calendar year, time is not on your side. A properly-conducted plan termination can take up to 2-3 months from start-to-finish, and requires significant planning, flawless execution and lots of attention to detail.
The Future is Brighter for Small-Balance Retirement Accounts
While small-balance retirement savings accounts have fared poorly in the past, their future has never looked brighter. Real progress is being made in reducing their numbers while simultaneously preserving and consolidating their savings, vs. previous “solutions” that encouraged them to cash out or exiled them to dead-end safe harbor IRAs.
The New Urgency for Mitigating 401(k) Account Cash-Outs
Americans’ lack of retirement preparedness has long been an area of concern for our nation. But findings in a recent study underscore that, despite all of the media articles offering tips for how to save more for retirement, many Americans are still making a self-destructive decision that can leave them with less when they retire.
The 401(k) “House-Cleaning” to Come
The increase in the automatic rollover threshold from $5,000 to $7,000, as provided for in section 304 of the SECURE 2.0 legislation, will become effective for mandatory distributions made after December 31, 2023.
What will be the impact of these provisions, if fully embraced by plan sponsors? One thing is certain – on both a one-time and ongoing basis, far more terminated participants will be subject to the automatic rollover provisions of their former-employers’ plans.
Five Tips for Documenting Missing Participant Searches
If a tree falls in the forest, does it make a sound? Opinions are split on this weighty philosophical matter, but a more-definitive answer to another question may surprise you.
If a search for a missing participant is not properly documented, is it a diligent search? To regulatory authorities who may scrutinize a plan sponsor’s search efforts, the answer is decidedly “no.” For a regulator to consider a search to be diligent, it must be well-documented, and to do otherwise can result in audits, penalties and increased fiduciary risk.
As Time Passes, The Gains Become Harder
Anyone of sufficient age who exercises regularly knows that gains become harder as you grow older. While improvements are possible, increased effort doesn’t always work. Instead, older fitness aficionados dial in the quality and efficiency of their workouts to experience continued gains.
Highway Through the 'Danger Zone'
The 401(k) cashout leakage problem is once again in the news, with the publication of an alarming study by academics, as well as new data from Fidelity Investments revealing a cashout leakage ‘danger zone’ facing participants between the ages of 30-39.
These studies, combined with the mounting weight of empirical evidence gathering for more than a decade, confirm that 401(k) cashout leakage is a huge, persistent problem.
Financial Literacy Can Help Close the Minority Wealth Gap for Retirement Savings
Knowledge is power, as the saying goes. As Americans observe another Financial Literacy Month, members of the retirement services industry have an opportunity to pause and think about how they can help empower more people to achieve a financially secure retirement.
A Renaissance for Auto Enrollment
After making great strides following the Pension Protection Act of 2006 (PPA), adoption of auto enrollment has continued to build slowly but steadily in recent years. According to DOL Form 5500 data, by 2021 the feature has been adopted by plan sponsors housing almost 50% of total 401(k) participant accounts.
The Important Task of Determining Participants’ Life Status
Determining retirement plan participants’ life status is an important, albeit uncomfortable task for plan sponsors. Whereas plan participants are typically more concerned about securing a comfortable retirement income that lasts for life, plan sponsors must deal with deceased participants who will leave behind residual plan benefits requiring proper administration.
Dialing Up the Intensity of Missing Participant Searches
When it comes to locating missing retirement plan participants, there’s no substitute for an effective electronic, or “e-search.” However, retirement plan sponsors will inevitably encounter scenarios where periodic e-searches alone will not suffice.
The Big Shift Towards Auto Portability
To quote Ferris Bueller: “Life moves pretty fast. If you don't stop and look around once in a while, you could miss it.”
For those accustomed to a glacial pace of change in the world of retirement, you could be forgiven if you’ve missed two very recent, tectonic shifts toward the system-wide adoption of auto portability, the new default plan feature that automatically moves small balance retirement savings forward as participants change employers, saving them time and money, while dramatically reducing cashout leakage.
A No-Brainer Benefit that Advisors can Bring to Plan-Sponsor Clients
The passage of the Securing a Strong Retirement Act of 2022 (known as “SECURE 2.0”) reinforces the bipartisan commitment in Congress to helping Americans save more for retirement. Signed into law as part of a $1.7 trillion omnibus spending bill signed by President Biden on December 29, the legislation includes a variety of provisions, including the expansion of automatic enrollment in 401(k) and 403(b) plans. Fortuitously, SECURE 2.0 measures related to auto portability come shortly after the launch of an industry initiative to make auto portability—a technology solution that can operate in tandem with auto enrollment to optimize plan participants’ retirement outcomes—much more accessible to plan sponsors across the country.
2022: A Most Consequential Year for Retirement Savings Portability
Last year at this time, our firm predicted that 2022 would be a pivotal year for retirement savings portability. It turns out we were right, but we confess to being pleasantly surprised at just how consequential (and positive) the year has been, and it’s not over yet.
Here’s a rundown of key events during 2022 that have helped to positively shape the future of retirement savings portability:
Webinar Showcases Extraordinary Industry Alignment on Auto Portability
For defined contribution recordkeepers, competition has long been fierce, so it’s extraordinary when industry rivals join forces and align around a common cause.
That alignment around auto portability, embodied in the newly launched Portability Services Network (PSN), was on full display in a 12/8/22 Groom Law Group webinar. The event featured representatives from retirement industry titans and founding PSN members Alight Solutions, Fidelity Investments and the Vanguard Group, joined by Retirement Clearinghouse (RCH).
A New Year’s Resolution for Sponsors: Facilitate Automated Plan-to-Plan Portability for Your Participants
At a time when terms like “inflation,” “gas prices,” “recession,” and “volatility” dominate chatter about the U.S. economy, plan sponsors and recordkeepers are likely fielding questions and concerns from participants. Every dollar counts when saving for a financially secure retirement, especially with the present volatility in the financial markets. But while investment fund options, asset classes, and fees are important for helping participants weather inflation and save more, there is another way that sponsors and recordkeepers can help participants protect, and increase, their retirement savings in the New Year—facilitate portability.
BREAKING: Leading 401(k) Providers, RCH Announce National Auto Portability Network
Why DEI and ‘Traditional’ Automatic Rollovers Don’t Mix
In the retirement community, momentum is growing to make our 401(k) system more inclusive and to ensure that retirement savings are more equitable.
How Consultants Can Miss the Mark on 401(k) Automatic Rollovers
I'm a big fan of 401(k) plan consultants, who’ve been forceful advocates for the adoption of best practices at leading retirement plan sponsors. So, it’s surprising to me that, when it comes to automatic rollover programs, consultants sometimes miss the mark, at least in terms of participant outcomes.
401(k) Plans: An Ongoing Public-Private Partnership That Works
The observance of National 401(k) Day on Friday, September 9th is an opportunity to reflect on the long-running, highly successful public-private collaboration that has fostered the rapid ascendance of America’s 401(k) system.
It’s my belief that this partnership will continue to drive innovations that will expand and improve the 401(k) system for millions of Americans – not only helping them to save more but preserving more of their savings for retirement.
Every Dollar Saved for Retirement Matters -- So Save More By Avoiding Cash-Outs & Consolidating 401(k) Accounts
Retired Baby Boomers who are saving for retirement through defined contribution plans like 401(k)s are drawing down their savings faster than their counterparts in previous generations who had pensions and other defined benefit plans, according to recent industry research. And on top of that, Baby Boomers who may be relying solely on their defined contribution plans may wind up with less savings for retirement than their counterparts who waited longer to withdraw savings from their defined benefit plans—and could, therefore, outlive their nest eggs.
Three Ways 401(k) Plan Sponsors Can Boost Participants’ Awareness on National Financial Awareness Day
August 14th is National Financial Awareness Day, and 401(k) plan sponsors have been instrumental in increasing the financial awareness of millions of Americans by providing them with access to workplace retirement savings plans that materially enhance their prospects for a timely and comfortable retirement.
Why Missing Participants Are So Misunderstood
Winston Churchill, once referring to the intentions of the former Soviet Union, stated: “it is a riddle, wrapped in a mystery, inside an enigma.” For 401(k) plan sponsors, that’s an apt description for the problem of missing participants.
Newly Proposed Legislation Can Help Resolve America’s Retirement-Savings Gaps
Vanguard’s How America Saves report for 2022 provided cause for optimism with some of its findings. For example, employee participation rates in Vanguard-managed defined contribution plans remain high, and have not declined year-over-year during the pandemic. The majority of participants in Vanguard plans also increased or maintained their contributions last year, and the average account balance for Vanguard participants increased by 10% year-over-year, to $141,542.
Five Reasons Why New 401(k) Auto Portability Legislation is So Important
A newly proposed bill -- the Advancing Auto Portability Act of 2022, co-sponsored by Senators Tim Scott (R-S.C.) and Sherrod Brown (D-Ohio), will offer tax credits to plan sponsors who implement auto portability, and codify rules for an industrywide auto portability network. The bill is expected to be rolled into the Senate version of the bipartisan Securing a Strong Retirement Act of 2022, which passed the U.S. House of Representatives on March 29 of this year.
Here are five reasons why the new auto portability legislation introduced in the Senate is so important.
Re-Thinking the Automatic Rollover IRA
Selecting an automatic rollover IRA provider used to be easy.
Most 401(k) plan sponsors simply accepted the solution offered through their recordkeeper or TPA. Others performed due diligence, using a limited set of criteria including basic fees, investment options and accountholder service.
401(k) Portability in Four Movements
Over the past 15 years, a very large (250,000+ participants) 401(k) plan sponsor that our company has had the opportunity to serve has been highly successful in delivering improved participant outcomes by incrementally adopting a full program of retirement savings portability.
Were the plan’s experience set to music, it could be described as “401(k) Portability in Four Movements” – opening with discordant levels of cashout leakage but quickly building towards more satisfying participant outcomes, including substantial improvements in the preservation and consolidation of retirement savings.
Addressing the Achilles’ Heel of Auto IRA Programs
I’m convinced that Auto IRA programs, despite their potential size and strength, suffer from an obvious Achilles’ heel: a lack of retirement savings portability.
Without addressing their portability problem, Auto IRA programs could expand, but may never reach their full potential, housing large numbers of churning, small-balance accounts. However, with adequate support for portability both into and out of these programs, they could dramatically increase the odds that they deliver on their promise of building incremental retirement wealth for millions of Americans.
Key Portability Finding Located in EBRI's Retirement Confidence Survey
An interesting and valuable finding lies buried within EBRI’s 2022 Retirement Confidence Survey (RCS), but you won’t find it referenced in the organization’s initial report, officially released to the public on Thursday, April 28th.
In an excerpt of a report available to survey partners, the RCS found that a plurality of job-changing 401(k) plan participants favored automatic plan-to-plan portability over consolidating their savings to an IRA, or leaving their savings behind in their former employer’s plan. This result comes on the heels of EBRI’s 2021 survey, which found that nearly 9 in 10 participants believed that auto portability would be valuable to them.
On Filling the Leaky 401(k) Bucket
In general, legislation that gets more Americans saving for retirement is good. But if a great many of those incremental savers would likely cash out their savings immediately following a job change, then the public policy benefits might fall a bit short, no?
The Next Area to Tackle for Preserving Retirement Savings: Uncashed Distribution Checks
Last year marked the 15th anniversary of the Pension Protection Act of 2006. This legislation included well-intentioned provisions for helping Americans increase their retirement savings, including the capability for defined contribution plan sponsors to automatically enroll employees in their plans. Despite the good intentions behind auto enrollment, and all the positive outcomes that have resulted, its introduction also coincided with high workforce mobility and a lack of seamless plan-to-plan savings portability, which has led to a surge in small, stranded 401(k) savings accounts.
Auto Portability’s Key Role Featured in U.S. Senate HELP Committee Hearing
A 03/29/22 hearing by the U.S. Senate Committee on Health, Education, Labor & Pensions (HELP), Rise and Shine: Improving Retirement and Enhancing Savings, focused on solutions that would enhance retirement security for Americans, particularly those who are under-served and under-saved.
What Financial Advisors Need to Know About Auto Portability
For quite a while, a compelling case has been made for auto portability based on its positive impact upon America’s 401(k) system, including participants, plan sponsors, recordkeepers and asset managers – all of whom realize significant, quantifiable benefits when small-balance retirement savings are preserved within the 401(k) system.
Consolidation is Vital to Reducing 401(k) Cybersecurity Risk
With $10 trillion in 401(k) and other defined contribution retirement assets to safeguard, retirement industry regulators are intensely focused on the issue of cybersecurity.
The latest developments signifying regulatory resolve include enforcement actions by the Securities and Exchange Commission (SEC), who in August 2021 sanctioned 8 firms in three separate actions (links here, here and here), for failing to have cybersecurity policies and procedures in place, potentially leading to compromised private client data.
Towards a Sustainable and “Greener” 401(k) System
“America’s retirement system is sustainable” said no one, ever.
That’s the basis for my somewhat cynical reaction to a February 14th, 2022, Request for Information (RFI) issued by the DOL’s Employee Benefits Security Administration (EBSA). The RFI (Request for Information on Possible Agency Actions to Protect Life Savings and Pensions from Threats of Climate-Related Financial Risk) was issued pursuant to a May 20th, 2021 Executive Order, and asks respondents to identify climate change related threats to “the life savings and pensions of U.S. workers and families.”
Auto Portability Featured in ERISA Advisory Council Report
I’m old enough to remember a time when auto portability was a concept, scarcely worthy of serious attention by practically anyone except a few zealots with an idea.
The ‘Fix’ for Missing Participants, Uncashed Distribution Checks and Forgotten Accounts
For years, regulators, policymakers and, of course, 401(k) plan sponsors have struggled with the vexing problems of missing participants, uncashed distribution checks and small, forgotten accounts. Every year, sponsors beseech regulators for clear guidance to mitigate their fiduciary risk, while lawmakers propose policies such as lost and found registries to help deal with the problems. Yet, the problems persist and have grown worse over time, even accelerating recently due to The Great Resignation.
The ‘Great Resignation’ Screams for Improved Retirement-Savings Portability
COVID-19 has altered so much in our nation, and our world, over the past two years. Many of us learned to stop and smell the roses during lockdowns, and count our blessings, especially health and family. For those who were fortunate enough to remain employed full-time during the pandemic and could work remotely, videoconferencing tools like Zoom and Microsoft Teams suddenly became indispensable for conferring with colleagues and customers.
Robert L. Johnson, Chairman of the Board and Largest Shareholder of Retirement Clearinghouse, Secures Endorsement of Two Civil Rights Organizations for Auto Portability
Robert L. Johnson, Founder and Chairman of The RLJ Companies and Chairman of the Board and largest shareholder of Retirement Clearinghouse (RCH), has secured endorsements for auto portability from two premier civil rights organizations – the National Urban League, and the National Association for the Advancement of Colored People (NAACP) – both with over a century of experience advocating for solutions that address the inequities and economic challenges experienced by Black Americans and by other communities of color.
Four Reasons Why 401(k) Auto Portability is Inevitable
Despite my being a long-time, unabashed proponent of auto portability – the new plan feature that provides seamless, end-to-end portability for small 401(k) retirement savings accounts – it’s always felt like an uphill battle to bring about its widespread adoption in our 401(k) system.
While that battle is by no means over, in late 2021, I finally accepted and now firmly believe that auto portability is, in fact, inevitable.
Kennedy Townsend: Solving Portability and Cashout Leakage are a Key DOL Priority
On 12/6/21, the Employee Benefit Research Institute (EBRI) conducted day 1 of their two-day 90th Annual Public Policy Forum. This forum’s theme was “A Path to a More Equitable Solution: Solving the Retirement Coverage Gap” and it seems to have been highly popular, as it broke EBRI’s previous record for forum attendance.
Three New Year’s Resolutions for 401(k) Plan Sponsors
Following on the heels of three compelling events that occurred in 2021, 401(k) plan sponsors would be well-served by making three 2022 New Year’s resolutions that, if acted upon, could deliver significant benefits for their plans, for their participants and ultimately, for the entire 401(k) ecosystem.
A Brief History of Auto Portability
Auto portability is a new “automatic” plan feature rapidly gaining acceptance by large defined contribution recordkeepers. While the feature is relatively new, it’s tempting to view auto portability as an “overnight success.” In fact, auto portability has been a long time in the making. In the article and in the embedded video below, please enjoy a “brief history” of auto portability.
Assessing the State of DC Plans & Retirement Savings, 15 Years After the Pension Protection Act
Traditionally, the anniversary gift for couples celebrating their 15th wedding anniversary is crystal. When the Pension Protection Act of 2006 was signed into law 15 years ago, a crystal ball would have been useful. Although this legislation was (commendably) crafted with the best of intentions, its unintended consequences for defined contribution plan participants and sponsors continue to reverberate.
Four Reasons Why Auto Portability Can't Wait
Auto portability can’t wait.
There are four key reasons why the new plan feature that automatically moves small balance retirement savings forward as 401(k) participants change jobs can wait no longer.
Solving Cashout Leakage, Auto Portability Featured in Senate Committee Hearing
A 10/28/21 hearing by the U.S. Senate’s Special Committee on Aging, titled A Financially Secure Future: Building a Stronger Retirement System for All Americans, was highly-focused on the problems of cashout leakage, as well as its most promising solution, auto portability.
The Top Five Misconceptions About Auto Portability
Auto portability is a new “automatic” plan feature that is rapidly gaining acceptance by large defined contribution recordkeepers serving almost 10 million participants. While the feature is relatively new, it has received a great deal of attention in the media and has also been the beneficiary of definitive regulatory guidance, promulgated by the Department of Labor (DOL).
Vanguard Joins the Auto Portability Clearinghouse
In a press release issued 9/21/21, The Vanguard Group (“Vanguard”) announced it has engaged with Retirement Clearinghouse (RCH) to introduce the RCH Auto Portability program to their defined contribution plan sponsor clients in mid-2022.
EBRI Research Reveals Auto Portability’s Massive Incremental Benefits to Pending Legislation
In a 9/13/21 Employee Benefit Research Institute (EBRI) webinar (The Impact of Proposed Legislative Changes on Retirement Income Adequacy), EBRI Research Director Jack VanDerhei presented an analysis of pending legislative changes, including automatic contribution plans and arrangements (ACPAs), paired with a refundable saver’s credit.
Refundable Saver’s Tax Credits Would Significantly Reduce Retirement Savings Shortfall—Especially for Minorities
Concurrent with the COVID-19 pandemic, our elected representatives have been grappling with the issue of wealth disparities between America’s white and minority workers. Commendably, there has been bipartisan support in Washington, DC for measures to assist those who are historically under-served or under-saved in our national system for accumulating and incubating retirement savings.
Beware of Second Order Effects for Retirement Savings Public Policies
At first glance, some retirement savings public policies can seem like a sure thing, particularly when they’re based solely upon the benefits that would directly result. However, in the real world, these “first order” effects are inevitably followed by “second order” effects, which can sometimes be antithetical to the policy’s original intent.
Senate Hearing Reveals Large Employer Support for Auto Portability
During testimony in a July 28th hearing held by the Senate Finance Committee (Building on Bipartisan Retirement Legislation: How Can Congress Help?), Aliya Robinson, Senior Vice President of Retirement and Compensation Policy for the ERISA Advisory Committee (ERIC), twice voiced her support for auto portability, the new plan feature that automatically moves small balances to the new employer’s plan when participants change jobs.
Five Misconceptions About Automatic Rollovers
Most agree – automatic rollover programs can help plan sponsors deal with problems associated with small-balance accounts, including:
- High levels of missing participants
- Increased administrative costs and workload
- Increased recordkeeping fees
- Lower average account balances
So Happy Together: Auto Portability & Authorized Portability
When auto portability becomes ubiquitous in America’s 401(k) system, it will herald 100% fully automated, end-to-end portability for all small-balance job-changers.
Don’t Relegate Lost & Missing Accounts to the Lost & Found—Consolidate Them in the Retirement System
The Securing a Strong Retirement Act of 2021, nicknamed the “SECURE (Setting Every Community Up for Retirement Enhancement) Act 2.0,” was passed unanimously by the House Ways and Means Committee, and many expect the bill to pass the full House of Representatives.
A Happy Ending for Consenting 401(k) Participants
For consenting 401(k) participants, it seems that “happy endings” are possible.
New, compelling data from an ongoing program of portability for small-balance 401(k) job-changers illustrates the effectiveness and appeal of seamless portability, revealing broader implications for auto portability and for all job-changing 401(k) participants, regardless of balance.
401(k) Retirement Savings: More ‘Gone’ Than ‘Forgotten’
Draft SECURE 2.0 legislation that provides for a PBGC-based Retirement Savings Office of the Lost and Found, along with the May release of a drama-laden white paper, could leave casual observers with the mistaken impression there is a massive problem with “forgotten” 401(k) accounts.
Re-Securing the Highest Purpose for a Retirement Savings Lost & Found
Past proposals for an Office of the Retirement Savings Lost and Found (“Lost & Found”) offered good examples of how the federal government could serve an important, ancillary role alongside the private sector in our nation’s 401(k) system.
Leakage and Auto Portability Featured at Senate HELP Committee Hearing
On May 13, 2021, the U.S. Senate’s Committee on Health, Education, Labor and Pensions (HELP) held its first hearing on retirement security since 2013. With testimony from a blue-ribbon panel of witnesses, the hearing had a broad focus, but the topic of retirement savings leakage, and its most-promising solution, auto portability, were prominently featured.
A Big Problem: Another Leakage Study Reaches the Same Conclusion
Arriving with little fanfare, a recent study prepared by the Staff of the Joint Committee on Taxation, a nonpartisan committee of the United States Congress, confirms the findings of earlier research on cashout leakage – namely, that cashout leakage is a big problem, is driven by job changing, and is exacerbated by "forced distributions and [a lack of] portability of plans.”
Auto Portability is an Easily Quantifiable Solution for Helping Participants Achieve Financial Wellness
Financial wellness has taken on a new urgency over the past year as we have witnessed a series of “once-in-a-lifetime” events that affect how we work and save for retirement. In response, many plan sponsors have adopted new and important tools to strengthen the financial wellbeing of their participants.
The Case for Auto Portability Gets Stronger
The case for auto portability, the new 401(k) plan default feature that automatically transfers small-balance retirement savings when participants change jobs, has always been strong. Now, with the April 22nd release of EBRI’s 31st Annual Retirement Confidence Survey (RCS), the case has grown stronger.
Cracking the Code to True 401(k) Portability
America’s 401(k) system, long plagued by friction, produces $92.4 billion of excessive cash-out leakage annually. In recent years and culminating in 2021, the private sector has finally “cracked the code” and is delivering innovative fintech solutions, combined with education and personal assistance to reduce friction and to enable true 401(k) portability.
What’s Missing from Many Plans? Current Addresses for Participants
Consolidating the Gains from a Program of Retirement Savings Portability
When research performed 8 years ago reveals that your 401(k) plan, by turning on portability and consolidation for all participants, has halved cashout leakage and dramatically reduced its small account problem, what do you do for an encore?
Auto Portability Is, And Always Will Be, A Bipartisan Solution
With Boston Mayor Marty Walsh’s nomination to become Secretary of Labor advancing through the Senate, the transfer of power in Washington, DC is progressing. Although the Department of Labor is taking direction from a Democratic administration, the solution to the problem of rampant asset-leakage from the U.S. retirement system will remain on track.
This One Simple Trick Radically Boosts Financial Wellness!
401(k) Plan Sponsors: How would you like to radically boost your participants’ financial wellness, increase your plan’s assets, reduce your plan’s costs, and prevent missing participants?
Adopting this one simple and proven trick – retirement savings portability – delivers all this and more!
Missing Participants: Five Important Considerations for Plan Sponsors
The problem of missing participants in employer-sponsored retirement plans is one of the most important, yet perplexing issues facing plan sponsors, and for good reason.
Ensuring that participants (or their beneficiaries) receive their benefits is the essence of an employer’s fiduciary responsibility – and missing or unresponsive participants who become separated from those benefits can generate significant risks for plan fiduciaries.
Nudge Theory can Help Sponsors Strengthen Financial Wellness Initiatives
New Research on Locating Missing Participants Augments DOL Guidance
On 1/26/21, Retirement Clearinghouse (RCH) released a study that advances the art and science of locating missing 401(k) plan participants. The study – Improving the Effectiveness of Electronic Missing Participant Searches – comes on the heels of U.S. Department of Labor (DOL) guidance on the topic and is highly-useful for plan sponsors who utilize electronic searches, or “e-Searches” as they are referenced in the study.
How Sponsors can Facilitate Better Participant Outcomes—and Improve Plan Metrics—in 2021
Three New Year's Resolutions for Plan Sponsors to Consider
In January, Alight Solutions released 2020 Hot Topics in Retirement & Financial Wellbeing, a survey of 130 plan sponsors employing 5.5 million workers and highlighting key trends among plan sponsors, including expanding financial wellbeing programs, increasing efforts to help participants bridge the gap between working and retiring, and strengthening programs to locate missing participants.
Bringing Sunlight to the Dark Corners of Safe Harbor IRA Fees
401(k) plan sponsors know all too well that sunlight – coming in the form of transparent fees and disclosures – is vital to fulfilling their fiduciary duty to act in the best interest of their participants.
Elections Have Consequences—Elect to Help Participants Keep Their Savings, Instead of Losing Their Savings via Mandatory Distributions
Broadcast Retirement Network Features Segment on ‘Small Account Problem’
On Wednesday, 11/4/20 the Broadcast Retirement Network’s Jeff Snyder interviewed Retirement Clearinghouse (RCH) President & CEO Spencer Williams and Alight Solutions’ Vice President & Head of Research Rob Austin to address the 401(k) system’s small account problem – where high levels of cashout leakage in small balance segments perennially robs millions of participants of a timely or comfortable retirement.
If Timothy Leary Were a 401(k) Plan Sponsor
In the 1960’s, counter-culture guru Timothy Leary urged a generation to “turn on, tune in and drop out.” It’s probably a good thing that I didn’t take his advice….at least not the “drop out” part!
The Explosion of Small-Balance IRAs
Based on solid research, we’ve long known that typical automatic rollover IRAs result in high levels of cashout leakage. We’ve also suspected that they’ve contributed to an explosion of small-balance IRAs.
From Tired to Inspired: A Roadmap for 401(k) Roll-Ins
As I wrote in a previous article, 401(k) automated portability is an idea whose time has come. To achieve that vision, how will we get from the present state to full automation of the plan-to-plan roll-in process?
This article, as well as the video below, offers readers a roadmap for the progression from ‘tired’ to ‘wired’ and finally, to the ‘inspired’ state that will eventually characterize 401(k) roll-ins.
Every Dollar Counts in Today’s Zero-Interest-Rate Environment
It’s no secret that interest rates have been at historically low levels for quite some time, but the recent announcement by Federal Reserve Chairman Jerome Powell indicates that rates will stay near zero for the foreseeable future. Chairman Powell stated in his address last month that the Fed would tolerate above-2% inflation instead of attempting to preemptively control inflation by raising interest rates.
Automated 401(k) Portability: An Idea Whose Time Has Come
French author and poet Victor Hugo observed: “nothing is more powerful than an idea whose time has come.”
In theory at least, plan-to-plan portability has always been a feature of our 401(k) system. In practice, it’s been completely impractical for all but a hardy few. The idea of automating 401(k) portability was the holy grail, a ‘moonshot’ generally believed to be impossible…until now.
401(k) Plan Terminations Could Produce New Wave of Cashout Leakage
During the COVID-19 crisis, massive job losses combined with economic hardship and relaxed restrictions on withdrawals have created the conditions for a perfect storm of 401(k) cashout leakage. Unfortunately, this storm may soon gain more strength, when a surge in end-of-year 401(k) plan terminations could trigger a new flood of cashouts, as participants are forced to leave their former employers’ plans.
‘Sudden Money’ and Preserving 401(k) Savings Don’t Mix
Researchers realize that long-term retirement planning is not a natural act for most 401(k) plan participants. Consequently, important 401(k) plan features have evolved (ex. – auto enrollment, auto escalation, QDIA funds, etc.) to overcome the mis-match and to promote saving for retirement. Many of these features work spectacularly well – but only for as long as participants are actively participating in that plan.
The Tragicomedy of Cashout Leakage
I often write about the phenomenon of cashout leakage, which occurs when participants change jobs and prematurely withdraw their retirement savings, prior to normal retirement age.
How to Mitigate COVID-19’s Potentially Catastrophic Impact on Americans’ Retirement Readiness
It’s bad enough that more than 50 million Americans have filed claims for unemployment benefits since the start of the COVID-19 pandemic and lockdown. But in addition to the disruption, financial hardship, and uncertainty that unemployed Americans (and their families) are experiencing right now, this crisis also threatens their financial security during retirement.
Closing the Coming COVID-19 Retirement Savings Gap
When the dust finally settles from the COVID-19 pandemic, it’s a cinch that the nation’s retirement deficit will have widened significantly, due in large measure to a flood of 401(k) cashout leakage, which will increase significantly as a result of the crisis.
Alight Solutions to Lead Nationwide Launch of Auto Portability
In a press release issued Tuesday, July 14th, Retirement Clearinghouse (RCH) announced that Alight Solutions will lead the nationwide launch of the RCH Auto Portability program.
401(k) Cashout Leakage: A Reality, Not a “Narrative”
I write a lot about 401(k) cashout leakage, and I can assure you that counts for nothing around my dinner table or at cocktail parties. The topic, though, is a serious one, adversely affecting the retirement prospects of millions of Americans.
COVID-19 Pandemic Demonstrates the Need for Institutionalized Portability
The COVID-19 crisis has created a situation where tens of millions of American workers are in danger of seeing their retirement savings depleted. In addition to the awful death toll, the COVID-19 outbreak has led to extreme disruption in daily life, financial markets, and the economy—especially employment. As of May 28, more than 40 million Americans filed claims for unemployment benefits in the previous 10 weeks. This deadly combination of 1) levels of unemployment not seen since the Great Depression, 2) a significant market downturn, and 3) the ongoing plan-to-plan portability gap, has serious implications for these Americans’ retirement outcomes.
A Critical Time to Protect the Vulnerable
The COVID-19 crisis has taught many painful lessons – but perhaps none more important than the need to protect those who are most vulnerable to the pandemic’s ill effects.
Let’s Extend the Spirit of the CARES Act to Automatic Rollover IRAs
America is a fundamentally caring country, as reflected in the collective actions of its individuals, businesses and policymakers. In the midst of the COVID-19 crisis, no policy reflects this caring spirit more than the aptly-named CARES Act, which, among other things, temporarily allows retirement savers hard-hit by the COVID-19 crisis to tap their qualified retirement savings while avoiding the punitive, 10% early-withdrawal penalty.
To Show Participants You Care, Help Them Avoid Cashing Out Post-CARES Act
It goes without saying that we are not living in normal times. The health and safety of our families and communities are paramount, and measures to ease burdens and hardships are always appreciated. These include the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the massive fiscal stimulus signed into law on March 27, 2020.
Think Twice Before Tapping Your 401(k) for Short-Term Needs
In extraordinary times like these, it is understandable that Americans need emergency cash injections to pay expenses. But before tapping their 401(k)s, workers should at least follow the advice offered by the old saying “think twice,” and consider all sources of short-term cash, before prematurely cashing out their 401(k) savings (WSJ: “The Emergency 401(k) Button,” March 20). Even if tax and other penalties on 401(k) cash-outs during this period are waived, Americans who cash out forfeit the additional savings which the sums they receive would have accrued by retirement, had they remained incubated in the U.S. retirement system.
How Does Auto Portability Work? Watch the Video.
Looking for a quick primer on how auto portability works? Watch the video below, which walks you through the four-step process, including:
1. Worker changes jobs
2. Locate new worker's account
3. Match data
4. Savings follow worker
The Institutionalization of Portability is Key to Reducing Cash-Out Leakage
Although defined contribution plan recordkeepers and sponsors have made considerable progress helping participants retain savings through reduced fees over the past decade, job-changing participants’ 401(k) savings account balances remain in a state of dangerous limbo, as participants often succumb to the temptation of cashing out. EBRI reports that at least 4.5 million—or 40%—of job-changing participants cash out $92.4 billion in 401(k) savings from the U.S. retirement system every year.
New Research Confirms Clear Shift Towards Plan-to-Plan Portability
Increasingly, 401(k) plans have become more-and-more “institutionalized” – reflected by an increased level of sophistication in investment options, coupled with a downward trend in fees.
Video: Is Auto Portability the Next 401(k) ‘ESG’ Initiative?
Three recent developments indicate that the retirement industry is waking up to the need to address 401(k) cashout leakage, and importantly – from within the framework of corporate social responsibility.
How Socially Responsible Corporations Will Solve the 401(k) Cashout Crisis
How Sponsors can Help Minorities Save More for Retirement
Every year, our nation’s retirement system loses $92 billion in savings because 401(k) plan participants prematurely cash out their accounts when they change jobs. This is the most recent estimate from the Employee Benefit Research Institute (EBRI), and while this finding affects all American workers, minorities are hit hardest.
The New Age of DC Plan Portability
Auto Portability 2019: The Year in Review
At Retirement Clearinghouse (RCH), we’re excited about the 2020 prospects for auto portability. Before we’re too far into a new decade, we wanted to pause, take a breath and share with you some highlights from 2019, a year that’s positioned the newest automatic, default plan feature for widespread adoption.
A Financial Wellness Program You Can Actually Measure
Although the financial wellness of employees has emerged as a top priority for employers in recent years, too many workers are still struggling to improve their financial health.
The Surprising Migratory Patterns of Job-Changing Participants
Much has been written in the media, including this column, about the increase in mobility of today’s American workforce.
The Playbook for Conducting Diligent Missing Participant Searches
Sponsors of active retirement plans are increasingly challenged by the problem of missing participants, and the difficulties they face in performing diligent searches. After all, ensuring that plan participants (or their beneficiaries) receive the benefits they’re owed is a sponsor’s primary fiduciary responsibility.
Safe-Harbor IRAs are Supposed to be Temporary
The Auto Portability Imperative
The Most Promising Policies to Reduce 401(k) Cashout Leakage
Cash-Out Leakage is Still Too High—and Auto Portability can Help
401(k) account cash-outs remain a potent threat to Americans’ retirement-readiness and by all accounts the U.S. Department of Labor agrees, having issued its final Prohibited Transaction Exemption (PTE) for auto portability at the end of July.
The Magnitude of the 401(k) Cashout Leakage Problem
Cashout leakage, a long-standing problem in America’s defined contribution system, is a silent crisis that unnecessarily robs millions of Americans of a comfortable, timely or secure retirement. Plagued by misunderstanding and neglect, it’s vitally important to understand the problem and to take decisive action to curb it. The third of a five-part series, this article addresses the magnitude of the 401(k) cashout leakage problem.
The Safe-Harbor IRA: Friend or Foe?
An Important Milestone: The DOL Issues Final Prohibited Transaction Exemption for Auto Portability
On July 31st, the U.S. Department of Labor (DOL) released the final Prohibited Transaction Exemption (PTE) to Retirement Clearinghouse (RCH) for the RCH Auto Portability program, completing the regulatory framework and clearing the way for auto portability’s widespread adoption.
This new development represents an important milestone on the path to auto portability, a private-sector innovation that will help prevent 401(k) cashout leakage, increase plan efficiencies and improve the prospects of a timely, comfortable and secure retirement for millions of Americans.
The Demographics of 401(k) Cashout Leakage
Cashout leakage, a long-standing problem in America’s defined contribution system, is a silent crisis that unnecessarily robs millions of Americans of a comfortable, timely or secure retirement. Plagued by misunderstanding and neglect, it’s vitally important to understand the problem and to take decisive action to curb it.
What’s Missing from the SECURE Act? A Provision to Plug Cash-Out Leakage
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, passed by the House of Representatives on May 23, has the potential to make a positive impact on Americans’ retirement readiness. One of the bill’s key provisions involves removing restrictions on open multiple employer plans (MEPs), which would make it less costly for small businesses to offer retirement savings plans to employees.
Spotlight on Cashout Leakage: The Fundamentals
Cashout leakage, a long-standing problem in America’s defined contribution system, is a silent crisis that unnecessarily robs millions of Americans of a comfortable, timely or secure retirement. Plagued by misunderstanding and neglect, it’s vitally important to understand the problem and to take decisive action to curb it.
The first of a five-part series, this article addresses the fundamentals of cashout leakage.
How Auto Portability Serves Participants’ Best Interests: Part 5
Previously: In Part 1, I examined the dramatically improved participant outcomes that will result from a program of auto portability. In Part 2, I described how auto portability, by enhancing and extending automatic rollover programs, represents an enhanced standard of participant care. In Part 3, I presented evidence that the adoption of auto portability could lead to a reduction in plan expenses. In Part 4, I addressed how auto portability could enhance 401(k) participants’ financial wellness.
In part 5, my final installment of the series, I explain how auto portability can mitigate retirement-related cybersecurity risks.
How Auto Portability Serves Participants’ Best Interests - Part 4: Auto Portability Enhances Participants' Financial Wellness
Previously:
- In Part 1, I examined the dramatically improved participant outcomes that will result from a program of auto portability.
- In Part 2, I described how auto portability, by enhancing and extending automatic rollover programs, represents an enhanced standard of participant care.
- In Part 3, I presented evidence that the adoption of auto portability could lead to a reduction in plan expenses.
In Part 4, I address how auto portability could enhance 401(k) participants’ financial wellness.
A Plan Metric Every Sponsor Should Track: Participant-Retained Retirement Savings
When evaluating their defined contribution plans, plan sponsors understandably look at standard benchmarks such as rate of participation, average deferral percentage, and average account balance. However, given the highly mobile nature of today’s American workforce, sponsors should also consider tracking the average percentage of retirement savings that participants retain during their job tenure, and when they leave to join another employer.
LIMRA Webinar Features Michael Kreps’ Update on Auto Portability
On April 16th, as part of their Strategic Issues Webinar Series, the LIMRA Secure Retirement Institute delivered the webinar Regulatory and Legislative Trends Impacting the U.S. Retirement System. The LIMRA webinar featured presenter Michael Kreps, Principal, Groom Law Group, and was moderated by Judy Zaiken, Corporate Vice President, LIMRA.
EBRI Webinar Examines Impact of Tenure on Retirement Savings
The webinar’s presenters included Craig Copeland, Senior Research Associate, EBRI and Spencer Williams, President & CEO, Retirement Clearinghouse (RCH), and was moderated by Stacy Schaus, Founder & CEO, Schaus Group LLC.
America's 401(k) System is Unsustainable - Let's Fix It
On Earth Day 2019, as we focus on creating a sustainable and eco-friendly environment, it's worth considering how the application of similar principles would benefit our retirement system. America’s 401(k) system is unsustainable – urgently requiring an upgrade to effectively deliver on its intended goal – helping millions of Americans enjoy a timely and comfortable retirement. The good news is that we're beginning to see important signs of action that could ultimately address the problem.
How Auto Portability Serves Participants’ Best Interests - Part 3: Auto Portability Could Lower Plan Expenses
Previously:
- In Part 1, I examined the dramatically improved participant outcomes that will result from a program of auto portability.
- In Part 2, I described how auto portability, by enhancing and extending automatic rollover programs, represents an enhanced standard of participant care.
In Part 3, I present evidence that the adoption of auto portability could lead to a reduction in plan expenses.
Cybersecurity is Augmented by Auto Portability
All companies that manage personal consumer data, regardless of where they are based or what industry they are part of, are right to be concerned about cybersecurity. The scope and scale of cyberattacks continue to increase around the world, as last year’s breach compromising 50 million Facebook users demonstrated.
Tax Day is Coming—Encourage Millennial Participants to Incubate Saver’s Credits
April 15 is just around the corner. While many Americans dread Tax Day, April 15 presents defined contribution plan sponsors with an opportunity to demonstrate their value as fiduciaries, and as financial wellness advocates.
EBRI Webinar Extends Auto Portability’s Benefits to Young Millennials
In their March 20th webinar "Achieving Retirement Income Equivalency Between Final-Average-Pay Defined Benefit Plans and Automatic Enrollment 401(k) Plans in the Private Sector", the Employee Benefits Research Institute (EBRI) revealed more research that supports the case for auto portability.
How Auto Portability Serves Participants’ Best Interests - Part 2: An Enhanced Standard of Participant Care
In this series, I identify five key reasons why an auto portability program serves the best interests of plan participants.
Previously, in Part 1, I examined the dramatically improved participant outcomes that will result from a program of auto portability.
In Part 2, I describe how auto portability, by enhancing and extending automatic rollover programs, represents an enhanced standard of care for participants.
5 Ways to Check if Your ARO Program Needs an Upgrade
The long-awaited Department of Labor (DOL) guidance on the legal and regulatory framework for auto portability has cleared the way for plan sponsors to further enhance and optimize their automatic rollover programs. By explicitly recognizing auto portability’s potential benefits to retirement savers, the DOL acknowledges that existing ARO programs have flaws which auto portability can fix.
How Auto Portability Serves Participants’ Best Interests, Part 1: Dramatically Improved Participant Outcomes
Plan sponsors considering the adoption of auto portability must determine that, by participating in the auto portability program, they are acting prudently and solely in the interests of their plan’s participants and beneficiaries.
Auto Portability Boosts 401(k) Plan Results in New EBRI Research
The Employee Benefits Research Institute (EBRI) has added yet another study to a growing body of research supporting the substantial retirement savings public policy benefits of auto portability.
Want to Help Minority Participants Save More for Retirement? Adopt Auto Portability
Much has been written about America’s retirement-savings shortfall. Much has also been written about one of the major reasons for this shortfall—the lack of technology and operating standards to make seamless plan-to-plan savings portability easy for America’s highly mobile workforce. The cumbersome and costly nature of DIY portability has made prematurely cashing out small-balance 401(k) savings accounts, or stranding them in former employers’ plans, the easiest options for many participants after they change jobs.
Sidecar Accounts Can Plug Some 401(k) Leakage—But Not Most Leakage
“Not having enough emergency savings for unexpected expenses” is the No. 1 financial concern for Millennials and members of Generation X, and the No. 2 financial concern among Baby Boomers, after retirement security. These findings from a PwC Employee Financial Wellness Survey released last year shouldn’t surprise members of the retirement services industry, since too many defined contribution plan participants dip into their 401(k) savings—through loans, hardship withdrawals, or cash-outs upon changing jobs—to fund emergency expenses.
Retirement Industry Associations Weigh in on Auto Portability
On 11/7/18, the U.S. Department of Labor (DOL) proposed a Prohibited Transaction Exemption (PTE) for Retirement Clearinghouse’s (RCH) auto portability program, allowing for public comments by 12/24/18. On 1/7/19, after a brief delay triggered by the partial federal government shutdown, all official public comments were posted.
2018: A Great Year for Retirement Clearinghouse
As we pause at the end of 2018 to count our blessing and to celebrate the Holidays, we at Retirement Clearinghouse (RCH) find ourselves grateful for a very successful year.
What is Auto Portability? It Depends on Who’s Asking.
With the announcement of the Department of Labor’s recent actions, auto portability has taken center stage in the retirement industry. While auto portability has been well-known to a relatively small group of industry insiders, its recent, widespread coverage in the media has many asking the question “what is auto portability?”
With so many different -- and important -- perspectives on the matter, the best answer will depend on who’s asking the question.
Auto Portability is Like Bacon—It Makes Everything Better
When auto enrollment was widely adopted under the Pension Protection Act of 2006, it was a well-intentioned idea for helping Americans save more for retirement.
But in this case, what seemed like the perfect recipe for increasing retirement savings for hardworking Americans was missing a key ingredient.
Department of Labor Issues Auto Portability Advisory Opinion
The Department of Labor (DOL) has issued its 11/06/18 Advisory Opinion 2018-01A on Auto Portability, which can be accessed on the DOL’s website at this link.
Is Your Missing-Participant Program a Ford Model T or 2018 BMW?
A primary responsibility for fiduciaries is to seek out and identify the best available solutions that enable fulfillment of their responsibilities. For plan sponsors tasked with implementing and evaluating the effectiveness of their missing participant program, this can be a difficult task, particularly given the accelerating rate of technological innovation and the virtual explosion of new sources of data available online. In today’s day and age, what is considered a state-of-the-art program today could easily become obsolete tomorrow, rendering a plan’s missing-participant program vulnerable to fiduciary liability.
Pairing 401(k) Savings Preservation and Expanded Access for America’s Minorities
Over the past few years, we’ve written extensively about auto portability -- what it is, how it works and the significant, positive impact it will have on the retirement security of working Americans. Our positions have been supported by research, predictive models (including EBRI’s RSPM) and real-world results from the initial implementation of auto portability.
In this article, we address an important retirement public policy question: How would a pairing of auto portability with open multiple employer plans (or “open MEPs”) impact the retirement savings of America’s minorities, and particularly, African-Americans?
Three Unique 401(k) Hacks for National 401(k) Day
In observance of National 401(k) Day, we’ve compiled three unique 401(k) “hacks” – simple but clever tips for managing your retirement savings more easily and efficiently.
Don’t Become a 401(k) DIY Horror Story
With unemployment nearing historic lows, more career opportunity inevitably translates into greater job mobility. That means that more 401(k) participants will be changing jobs and will face important decisions on what to do with their retirement savings.
A Tale of Two 401(k) Balance Segments
It was the best of times, it was the worst of times.
For job-changing 401(k) participants with balances greater than $15,000, it was the spring of financial wellness, as the bulk of their retirement savings would remain intact. For less-aristocratic 401(k) savers with balances below $15,000, it was the winter of despair, as most of their savings would be lost on the cashout chopping block or forcibly exiled to a safe harbor IRA, where more savings would perish.
The Next Big Advancement for the 401(k)
Although the 401(k) is today the primary retirement-savings vehicle for many hardworking Americans, it can be easy to forget that the 401(k) is still a relatively new phenomenon.
401(k) Truth Bomb: Missing Participants are Bad, 401(k) Cashouts Are Worse
The problem of missing participants continues to receive a great deal of attention from plan sponsors, industry advocates, regulators and politicians. All parties are keen to address the negative outcomes that result when job-changing 401(k) participants leave behind their accounts with former employers, relocate and fail to update their address.
Regulators and Policy Advocates Focus on Retirement Savings Portability
Research has conclusively demonstrated that retirement savings portability dramatically reduces 401(k) cashout leakage, preserves retirement savings and reduces the incidence of missing participants. With that in mind, it’s not surprising that recent retirement public policy activities are increasingly focused on various aspects of portability.
Auto Portability’s Role in Helping Women Save More for Retirement
If current trends continue, approximately 104 million women will cash out almost $800 billion in retirement savings, in today’s dollars, over the next generation.
This eye-popping statistic, presented at a “Women and Retirement Income” roundtable discussion on May 22 sponsored by the Women’s Institute for a Secure Retirement (WISER), underscores the importance of financial wellness initiatives by plan sponsors to help women participants avoid cash-outs and instead preserve their 401(k) savings in the retirement system.
RCH Releases New Video “Addressing the Problem of Missing Participants”
Retirement Clearinghouse (RCH) has released a new video “Addressing the Problem of Missing Participants.” The video integrates new research findings from the March 2018 study “The Mobile Workforce’s Missing Participant Problem” and provides viewers with the most-complete and factual summary of the problem, including:
Benefits Professionals: Avoid Becoming ‘Collateral Damage’ in a Cyberattack
To readers aware of the ongoing, intense media focus on cyberattacks, it should come as no surprise that multiple studies show that the frequency and sophistication of cyberattacks is increasing, rising dramatically in 2017.
The Missing Piece in 401(k) Retirement Income: Consolidation
As Baby Boomers begin to retire in record numbers, they’re shifting their attention from saving for retirement to the process of decumulation, or converting their 401(k) savings into retirement income.
For many Boomers, their current-employer’s 401(k) plan wants to come to the rescue, offering them a dizzying array of retirement income solutions. Unfortunately, as these solutions begin to encounter reality, Boomers are finding that one simple, yet critical element is missing that prevents them from working as intended – the consolidation of their retirement savings.
401(k) Consolidation: What Every Plan Sponsor Should Know
Plan sponsors intuitively know that an explosion of small-balance 401(k) accounts held by terminated participants can create problems. Unfortunately, few sponsors are clear on the factors that give rise to small accounts, and fewer still understand how they can utilize consolidation programs to solve the problem.
Understanding and Solving the Problem of Women’s 401(k) Cashout Leakage
On May 22nd, at a Women’s Institute for a Secure Retirement (WISER) roundtable addressing strategies, choices and decisions for women’s retirement income, important new data was presented that highlights the challenges faced by women in preserving their 401(k) savings when changing jobs – particularly for women with balances less than $5,000.
Encouraging 401(k) Account Consolidation is the Key to Reducing Lost & Missing Participants
Much has been written recently about the preponderance of lost and missing participants. This predicament, one of the many offshoots of the problem of too many small accounts, is an urgent one for sponsors to address given reports that the Department of Labor (DOL) is focusing on their ability to locate missing participants during plan audits.
Missing Participants: An Ounce of Prevention Equals a Pound of Cure
When Ben Franklin coined the adage “an ounce of prevention is worth a pound of cure” he wasn’t considering the problem of missing participants, but 401(k) plan sponsors would be wise to heed Ben’s sage advice.
Today, plan sponsors face an explosion of missing participants, driven by the ongoing adoption of auto enrollment and increasing workforce mobility. Their problems are further compounded by the administrative burden required to locate them, combined with a regulatory minefield that offers little guidance and is prone to taking inconsistent enforcement actions.
DC Plan Sponsor Priorities Should Include Plugging Leakage, Enabling Auto Portability
As we continue to make our way through the second quarter of 2018, now is a good time to reflect on defined contribution (DC) plan sponsor priorities for this year.
The top priorities for these plan sponsors in 2018, outlined in December 2017 by Mercer, include:
America’s Modern Throwaway – 401(k) Retirement Savings
Following World War II, America saw the rise of a “throwaway” society – consuming, squandering and discarding vast quantities of national resources. Gradually, an awakening occurred as we realized that conservation was a more-sustainable path. Recycling models emerged, and once fully-adopted, they became deeply-ingrained in our psyches and formed a pillar of corporate social responsibility.
Are you all-in on roll-in? Encourage new hires to rollover old 401(k) balances into your plan
Over the past six years, there’s been a steady drumbeat pointing the way to increased portability and in-plan consolidation (“roll-ins”) as the next big strategic focus for defined contribution plans.
While this path may soon lead to the widespread adoption of auto portability, a process that automatically rolls in small balances into a participant's new-employer plan, many plan sponsors are already embracing programs that support roll-ins for all participants, regardless of balance size.
No Plan is an Island
New Insights into the Problem of Missing Participants
Today, Boston Research Technologies (BRT) and Retirement Clearinghouse (RCH) issued a joint press release announcing the key findings from a survey examining the retirement industry’s missing participant problem. The survey, The Mobile Workforce’s Missing Participant Problem, is the first to examine the problem from the perspective of the participant and offers unique insights into its various dimensions.
A New Solution to Tackle the Old Problem of Missing Participants
Despite differences big and small, all retirement plan sponsors and record-keepers experience at least one common problem—the seemingly intractable incidence of participants who have left behind small accounts in the plans sponsored by their former employers and failed to update their address when they subsequently change residence, a.k.a. missing participants.
The Crucial Role of the CSIRT
Born out of crisis, the modern Computer Security Incident Response Team, or CSIRT (pronounced ‘see-sert’) is responsible for coordinating the response to an organization’s computer security incidents.
With cybersecurity threats everywhere, CSIRTs play an indispensable role in the retirement industry, and in the future, should become a vital component for facilitating industry-wide collaboration in the face of cyberattacks
Two Retirement Public Policy Initiatives Moving Forward in 2018
In late 2017, retirement industry observers breathed a collective sigh of relief when “Rothification” of 401(k) plans, once considered as a part of new tax legislation, was abandoned. With Rothification in the rear-view mirror, policymakers have begun turning their attention to other, more-promising initiatives.
Auto Portability Makes Everything Better
Beginning in 2000 and continuing for a decade, American consumers were overtaken by “bacon-mania” – an obsession with the tasty, fried cured-pork treat that included cookbooks, exotic new products and a catchy slogan: “Bacon Makes Everything Better.” Great all by itself, bacon was hailed as having the added virtue of improving the taste of almost any dish it was added to.
The Most Urgent New Year’s Resolutions for Plan Sponsors
How are you hoping to improve yourself in 2018?
The most common New Year’s resolutions usually have to do with personal appearance, health, or behavior—losing weight, exercising more, dieting, quitting smoking, etc. Popular polls indicate that many of us are after a slimmer, fitter body for ourselves after each New Year’s Day.
Similarly, defined contribution plan sponsors are likely thinking about how they can make their plans more attractive and streamlined in 2018.
The Best Blueprint for Improving Retirement Security
Much has been written in this column and elsewhere about the benefits that auto portability, and seamless plan-to-plan portability in general, can provide to millions of retirement-savers across America. As any entrepreneur can testify, it is challenging to initiate a major innovation, and then persevere through all the twists and turns along the road to widespread adoption. Fortunately for everyday Americans saving for retirement, there is already an established blueprint in place for launching a nationwide, private-sector retirement clearinghouse that will enable auto portability.
The Results Are In: Auto Portability is a Winner!
On November 7th, Retirement Clearinghouse (RCH) issued a press release announcing the results of the first-ever implementation of auto portability, as evaluated by Boston Research Technologies (BRT)’s Warren Cormier in his just-published white paper “Making the Right Choice the Easiest Choice: Eliminating Friction and Leaks in America’s Defined Contribution System.”
How to Contain the Damage from the Small-Account Explosion
Much has been written about the proliferation of small accounts in our nation’s retirement system, and the problems that this explosion has created. A primary solution to the small-account quandary that I have frequently advocated in this column is auto portability.
In Search Of: Guidance for Locating Missing Participants
Two weeks ago, I authored an article applauding the American Benefits Council for their October 2nd, 2017 letter to the Department of Labor (DOL), which clearly identified the root causes of missing participants: a highly-mobile workforce and a lack of retirement savings portability. Extending the Council’s insight, I maintained that what’s really “missing” in our defined contribution system are initiatives that move retirement savings forward when participants change jobs, such as auto portability. When implemented, these initiatives could serve to dramatically decrease the overall incidence of missing participants.
Bringing Clarity to the Murky Problem of Missing Participants
On October 2nd, 2017, the American Benefits Council delivered a letter to the Department of Labor (DoL), urging the DoL to act on the problem of unresponsive or missing participants, an issue that has proven to be a significant point-of-pain for plan sponsors.
‘May Day, May Day’: Locate your plan’s lost & missing participants before it’s too late
The recent hacking of Equifax, which potentially compromised the security of sensitive information for 143 million Americans, doesn’t just reinforce the importance of cybersecurity. This cyberattack also makes a compelling case for the widespread adoption of auto portability.
Why Consolidation Should Top the List of Initiatives for Plan Sponsors in 2018
Today, it’s commonly-accepted practice for retirement plan sponsors to focus on three major initiatives to promote retirement adequacy: participation, saving and diversification.
While these three initiatives are proven, an emerging best practice is for plan sponsors to expand this list, incorporating consolidation, where plan participants are encouraged to consolidate balances from former employers’ plans, using their current-employer’s plan to manage their retirement savings.
The Explosion of Small 401(k) Accounts
It’s generally accepted that the small-balance accounts of terminated 401(k) plan participants have been a problem for plan sponsors, resulting in increased plan costs, fiduciary risk and other ancillary problems, such as missing participants and uncashed distribution checks.
Now, based on new information from EBRI and other sources, we’re learning that small accounts are a large and growing problem for active participants as well.
Don’t Wait Until It’s Too Late: Prepare Now for Year-End 401(k) Plan Terminations
As we enter the 4th quarter of 2017, many plan sponsors (as well as their advisors) will face the prospect of terminating a 401(k) plan. For most, this will be the first -- and only -- time that they’ll undertake this important initiative, typically without the benefit of prior experience.
The Exit Bonus Employers Never Intended to Pay
Without seamless plan-to-plan portability in place to preserve retirement savings when a participant changes jobs, many employers are unwittingly paying “exit bonuses” to terminated employees that they may never have intended to pay.
Five Ways to Make Retirement Savings Portability a Priority in 2018
It’s become widely-accepted that retirement savings portability is proven to address the small account problem for 401(k) plan sponsors, as well as preserve participants’ savings currently lost to cashout leakage.
However, the concept of retirement savings portability is relatively new. At year’s end, most plan sponsors’ attention will be focused on other plan design issues, such as auto enrollment/escalation, the lineup of investment options, enrollment, education, retirement income solutions and so forth.
The Cashout Clock is Still Ticking: Let’s Stop It!
On May 12th, Retirement Clearinghouse announced the National Retirement Savings Cashout Clock, a virtual clock that calculates 2017 year-to-date cashout leakage from America’s defined contribution system in real time.
Small Accounts: The Root of Many Problems
A Big Step Forward for Auto Portability
On July 11th, 2017, a small group of retirement services professionals at Retirement Clearinghouse (RCH) successfully conducted the first-use of a new and important financial technology. Known as “locate & match” -- the technology represents a breakthrough in the ability to automatically move small balances forward in America’s defined contribution system, and forms the backbone of RCH Auto Portability.
Washington Recognizes Need for Retirement Plan Portability Solutions – Part 2
In January 2016, this blog published a post on the November 2015 letter from Senator Patty Murray (D–WA) of the Senate HELP committee, signed by a bicameral group of Congressional members, urging then Department of Labor (DOL) Secretary Thomas Perez to encourage the DOL’s Employee Benefits Security Administration to issue guidance on auto portability.
Cybersecurity Meets Retirement Security
Everyone, it seems, is concerned about cybersecurity these days, and with good reason. Each week seems to bring a new round of headlines, making it clear that identity theft and criminal cyber activity have become persistent features of our lives.
The victims of cyber-crime can be wide-ranging, including governments, industry sectors, corporations of all sizes and individuals. The sources of cyber threats are equally diverse, originating from rogue nation-states, crime cartels, “lone wolf” hackers and even disgruntled employees.
Rising Healthcare Costs Necessitate Healthy Retirement-Saving Habits
If you think of retirement savings as a key part of a healthy retirement, then anyone who has prematurely cashed out 401(k) savings during their working life has suffered a compound fracture that will require several stages of therapy to fully rehabilitate. But a cash-out isn’t the only impediment to a financially secure retirement for these hardworking Americans.
Plug the Leaks Before Expanding Access to Defined Contribution Plans
In recent months, our attention has been drawn to some deserving public policy initiatives that would dramatically expand access to workplace retirement savings accounts and address the “access gap” encountered by millions of American workers who are presently offered no such option.
Auto Portability: Who Will Benefit?
Auto Portability is the routine, standardized and automated movement of an inactive participant’s retirement account from a former employer’s retirement plan to their active account in a new employer’s plan. By dramatically reducing cashouts and improving retirement readiness, Auto Portability will deliver broad benefits to America’s defined contribution system, its participants and to the entire American economy.
But who benefits from Auto Portability, and how?
The Fundamentals of 401(k) Cashout Leakage
How Big is the 401(k) Cashout Leakage Problem?
We’ve known for some years now that 401(k) cashout leakage is a very big problem, but have lacked a thorough understanding of its many dimensions.
The Rallying Cry for Improving Financial Wellness: ‘Eradicate Cash-Out Leakage In Our Time!’
Half a century ago, the global medical community united to wipe out smallpox, an infectious disease that afflicted mankind for millennia. In 1966, the World Health Organization (WHO) established the Smallpox Eradication Programme, which sent Western doctors to vaccinate the populations of nations and communities around the globe where smallpox was still rampant. No place where smallpox cases had been reported, or where the local population was not vaccinated, was overlooked by WHO medical teams, no matter how remote the village or how dangerous the journey.
EBRI Policy Forum Delivers Latest Research on Auto Portability (Video)
On Thursday, May 11th, the Employee Benefit Research Institute (EBRI) conducted their 80th Policy Forum.
Announcing the National Retirement Savings Cash Out Clock
In 1989, New York real estate developer Seymour Durst wanted to highlight America’s rising national debt, and came up with an idea: the National Debt Clock. Since then, the National Debt Clock has had a physical presence as a billboard near Times Square, serving as a constant reminder to Americans of their government’s ever-growing debt.
80th EBRI Policy Forum to Address Key Retirement Policy Issues
On Thursday, May 11th, the Employee Benefit Research Institute (EBRI) will conduct their 80th Policy Forum, sponsored by the EBRI Education and Research Fund (ERF). Hosted at the 20 F Street, NW Conference Center, the Forum is scheduled from 8:30am to 12:30pm.
Automatic Cash-Outs Undermine Efforts to Enhance Financial Wellness
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.
Why America’s Retirement Savings Needs Recycling
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.
New EBRI Research Finds $2T Saved From Automated Portability
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.
Financial Wellness Requires Mending Fractured Retirement Savings
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.
The African-American Retirement Crisis: How Auto Portability Can Help
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.
March 30th Washington DC Forum to Showcase Retirement Plan Portability & Public Policy
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. Click here to view a full agenda.
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