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.
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.
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.
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.
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.
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.
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.
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.
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.