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

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

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

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

Incubate Small Retirement Accounts, Don’t Throw Them Away

Posted by Neal Ringquist on Feb 16, 2017 11:30:00 AM

 

On February 3rd, the U.S. Chamber of Commerce, the world’s largest business federation representing the interests of more than 3 million businesses, released Securing America’s Retirement, their legislative roadmap aimed at strengthening the U.S. retirement system.

 

The Chamber’s goals are admirable:

“To address the needs of our nation’s shifting workforce, reduce barriers small businesses face in developing retirement plans, and make it easier for all Americans to save for their future…” 

 

The roadmap details policy solution proposals that Congress can act upon to achieve better retirement security for workers in the small business sector.  Improving retirement security for the small business sector is sorely-needed, as only 14% of companies with less than 100 employees – representing 34% of private sector payrolls -- offer their employees access to a retirement plan.  

 

In general, the majority of the Chamber’s agenda should be well-received, and appears to be well-vetted.  However, one policy proposal – increasing the mandatory cash-out limit to $10,000 – could have significant, unintended and adverse consequences for retirement security, if implemented without additional safeguards. 

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

One Small Improvement for 401(k) Plans, One Giant Leap for Retirement Readiness

Posted by Neal Ringquist on Feb 2, 2017 6:31:28 PM

Baby boomers will never forget Neil Armstrong’s famous quote in 1969, after becoming the first human being to set foot on the moon:

“That’s one small step for (a) man, one giant leap for mankind.”


Today, America faces a different, more down-to-earth challenge: delivering our citizens a comfortable and timely retirement. And similar to the moon landing – a ‘small step’ in the right direction can have a huge impact on the course of our lives.


A Focus on 401(k) Plan Deficiencies

At no time has our retirement challenge been more evident than during the first few weeks of 2017, with multiple articles pointing out deficiencies of 401(k) plans as the primary vehicle for retirement savings.

Much of the focus for improving the 401(k) system has been on increasing participation, and statistics indicate that this concern is well-founded. Unfortunately, scant attention has been paid to plugging retirement plan leakage, particularly cash out leakage – a problem that drains our retirement system of billions of dollars annually.

There is one solution – auto portability – that has the potential to plug cash out leakage and increase 401(k) plan participation. If fully implemented, auto portability could drive significant improvements in our nation’s retirement readiness. And unlike a manned mission to the moon, auto portability can be delivered by the private sector, at no cost to the American taxpayer.

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Topics: Auto Portability, 401(k) Consolidation

How to Remove 'Friction' from the 401(k) System

Posted by Thomas Hawkins on Jan 24, 2017 8:10:00 AM



In consolidated testimony before the ERISA Advisory Council  on the topic of Participant Plan Transfers and Account Consolidation for the Advancement of Lifetime Plan Participation, EBRI’s Craig Copeland and Retirement Clearinghouse’s Tom Johnson presented “Auto Portability Research & Simulation: Automating Plan-to-Plan Transfers for Small Accounts” – providing the Council with the latest information & research on Auto Portability, as well as describing the present state of plan-to-plan transfers (“roll-ins”).

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Topics: Auto Portability, 401(k) Consolidation, Managed Portability, Roll-In, Retirement Savings Portability

This Year, Resolve to Debunk Two Common Retirement-Saving Myths for Participants

Posted by Spencer Williams on Jan 13, 2017 7:17:00 AM

 

“A lie can travel halfway around the world while the truth is still putting on its shoes” is a quote often attributed to Mark Twain. The same is true of myths about saving for retirement, and retirement services professionals should take it to heart as we begin 2017.

Many plan participants hold misconceptions about saving for retirement. Plan sponsors and record-keepers regularly demonstrate their commitment to fiduciary responsibilityby actively working to dispel these myths, which can potentially prevent participants from achieving their desired retirement outcomes.

Here are two common misperceptions that sponsors and record-keepers should seek to bust in 2017:

  • “You’re On Your Own When You Change Jobs.”

 

This is patently false, but too many participants assume they have no recourse if they wish to move their retirement savings forward to their new-employer plan.As this diagram makes all too clear, plan-to-plan portability is a complex and time-consuming process if participants undertake it on their own.

 

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

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