Consolidation Corner

Why America’s Retirement Savings Needs Recycling

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


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


Today’s Wasteful Behavior: Cash Out Leakage


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

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

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

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

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


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

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

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

-  2% lower contribution rates, vs. white participants

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

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

Big Changes Coming for Small 401(k) Accounts

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


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


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


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

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

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

Why Small Balance Cash Outs Are Falling Through the Cracks

Posted by Neal Ringquist on Aug 9, 2016 11:00:00 AM

According to the recently released 2016 Willis Towers Watson U.S. Retirement Governance Survey, a major trend in retirement plan governance is the growing concern employers have for employees’ retirement benefit adequacy and financial well-being. To address this concern, sponsors indicated plans to increase monitoring of participant behaviors, using metrics such as plan participation and contribution rates, as well as carefully tracking the performance of their plans’ investment managers.

Oddly, concern over participant cash outs – certainly the most destructive behavior that participants can undertake – doesn’t make the list, despite persistent evidence that cash outs are at epidemic levels, particularly for balances under $5,000.

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Topics: Auto Portability, Mandatory Distributions, Safe Harbor IRA, Automatic Rollovers, Cash Outs, Retirement Plan Portability, Retirement Savings Portability

When it Comes to Saving for Retirement, Millennials Can Learn from Baby Boomers’ Mistakes

Posted by Neal Ringquist on Jul 1, 2016 8:30:00 AM

In his 6/30/16 MarketWatch article, RCH President and CEO Spencer Williams suggests an inter-generational dialogue on the pitfalls to avoid when saving for retirement.


As the generation whose career has witnessed the emergence and widespread adoption of 401(k) plans, Boomers are uniquely qualified to lend their perspective to Millennials. As Boomers have changed jobs, the specter of the cashing out has loomed largest in their list of regrets.


Sadly, the cashout leakage problem could have been solved by simply providing Boomers with an easier alternative to move their balances forward to their current-employer plans, as they changed jobs.   The good news for Millennials is that the problem of portability friction is being taken up in Washington, DC – including by the White House, a bicameral group of Congress members, as well as the Bipartisan Policy Center. All of these calls share one thing in common: making it easier for current and future generations to move their retirement savings forward at the time of job transition, thus avoiding the scourge of cash outs.


Williams cites results from the Auto Portability Simulation (APS) model that show $115 billion in new retirement savings would be added to the nation’s retirement system, if we only added portability to the equation. And that’s just for savers with less than $5,000!


Millennials can ensure they don’t wind up regretting their actions by learning from the mistakes of their elders, and avoiding the temptation to cash out or leave their accounts behind when changing jobs.   Solutions like Auto Portability can make that choice a lot easier – not only for Millennials, but for every generation.


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Topics: Auto Portability, MarketWatch, Safe Harbor IRA, Automatic Rollovers, Cash Outs, Retirement Plan Portability, Retirement Savings Portability

Calls for Portability Solutions to Curb Cash Out Leakage Growing Louder

Posted by Neal Ringquist on Jun 21, 2016 11:00:00 AM

Cash out leakage – the premature withdrawal of retirement savings for non-retirement expenses – is a persistent problem in the retirement industry, and growing more pervasive as employee mobility increases.


The problem is particularly acute for small balance retirement accounts – those with a balance less than $5,000. Recent studies published by Aon Hewitt, Fidelity and Vanguard all point to a cash out rate of almost 60% for these accounts. Retirement Clearinghouse demonstrated that the actual leakage for these accounts may be as high as 89% when you factor in the cash out rates of safe harbor IRAs many of these accounts are swept to as a result of a mandatory distribution.


The root cause of cash out leakage is the lack of seamless portability of these accounts when employees change jobs. The Retirement Clearinghouse 2015 Mobile Workforce Survey illustrated the difficulty participants have moving accounts from the previous employer plan to the new plan.


Washington is waking up to the detrimental impact cash out leakage has on the retirement security of millions of Americans, and the need for portability solutions to address it.

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Topics: Auto Portability, Automatic Rollovers, Cash Outs, Retirement Plan Portability

Interesting Finding Emerges from the Auto Portability Simulation

Posted by Thomas Hawkins on Jun 16, 2016 10:42:00 AM

When the Auto Portability Simulation (APS) model was recently unveiled at EBRI’s 78th Policy Forum, a lot of attention was paid to the “marquee” numbers, and rightly so.  I’m referring here to the $154 billion reduction in cashout leakage, as well as the $115 billion increase in plan-to-plan roll-ins that occur under the adoption of Auto Portability.  

Those numbers, while dramatic, weren’t the only interesting outcomes yielded by the APS.  


The Power of Portability

Closely examining the year-by-year results, we noticed something odd.   When comparing the “No Auto Portability” and “Auto Portability” scenarios, under Auto Portability there were decreasing numbers of job-changing participants with less than $5,000. 


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Topics: Auto Portability, Automatic Rollovers, Cash Outs, Retirement Plan Portability

Auto Portability Simulation Model Unveiled at 78th EBRI Policy Forum

Posted by Thomas Hawkins on May 20, 2016 2:51:40 PM






On May 12th, Retirement Clearinghouse President & CEO J. Spencer Williams unveiled the Auto Portability Simulation (APS) at the Employee Benefit Research Institute's 78th Policy Forum. The APS was developed by Retirement Clearinghouse in conjunction with Dr. Ricki Ingalls, Chair of Computer Information Systems at Texas State University, and Principal at Diamond Head Associates, Inc.


The APS is a discrete event simulation, the first-of-its-kind in the retirement industry.  It shows two scenarios -- the first scenario models current practices, while the second models auto portability -- demonstrating the improved outcomes that will occur when millions of job-changing Americans with defined contribution plan balances less than $5,000 experience true plan-to-plan portability. 


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Topics: Auto Portability, Safe Harbor IRA, Automatic Rollovers, Cash Outs, Leakage, Retirement Plan Portability

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