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

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

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

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

How auto-portability can improve retirement readiness for a mobile workforce

Posted by Spencer Williams on Dec 19, 2016 9:00:00 AM

 

For more than a year now, we have been working with the research team at the Employee Benefit Research Institute (EBRI), Dr. Ricki Ingalls of Texas State University, and Boston Research Technologies to develop the Auto Portability Simulation (APS). The APS is a robust, quantitatively-based simulation that measures the size, characteristics and behaviors of America’s increasingly mobile workforce. The key findings from that work demonstrate the potential to dramatically reduce retirement plan cash-outs by identifying the long-term, systemic benefits of routine and standardized account consolidation at the time of a participant’s job-change—a technology-based innovation called Auto Portability.
 

In the course of our work on the APS, one of the nation’s top record-keepers asked us to expand the scope of the simulation to include a broader view of the mobile workforce, in this case to model all accounts with less than $15,000 at the time of their holders’ job-changes. In doing so, we uncovered rather astounding data regarding the size and extent of what we refer to as “the small account challenge.”

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

What is Synthetic Tenure, and Why is it Important?

Posted by Spencer Williams on Nov 15, 2016 11:00:00 AM

 

It is intuitive to observe that the easiest way for a plan participant to achieve lifetime participation in the U.S. retirement system is to work for the same employer for 40 years or more. But in today’s highly mobile workforce, that rarely happens. According to the Employee Benefit Research Institute (EBRI), the average American will change jobs more than seven times during a 40-year working life, indicating that a participant’s average tenure with each employer will be a little over five years. So what can be done to help the vast majority of participants that simply won’t work for one employer for their entire careers? 

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

Why our retirement system is broken

Posted by Spencer Williams on Oct 19, 2016 8:27:13 AM

 

It’s ironic that, as we observe another “National Save for Retirement Week,” the retirement system we have in this country isn’t really a “system” at all.

A system implies multiple parts that seamlessly work together to complete processes leading to a goal. The U.S. retirement system has all the parts it needs to help plan sponsors and participants achieve their objectives—but the parts are missing the connections they need to run smoothly and operate at their full potential. In other words, our retirement system has a lot of stations, but no trains to connect them.


One sure-fire path for plan participants to reach their goal of a financially secure retirement is to keep their savings invested in the retirement system throughout their working lives. As it is not practical to expect participants to spend their entire working careers at one company with a 401(k) plan, this involves a two-pronged approach whenever participants change jobs —never cashing out, and rolling savings into current-employer plans. Both of these tactics benefit sponsors as well as participants, but the lack of train connections among the various stations of the retirement system (frictionless portability) ensures that too many participants continue to cash out and/or strand their retirement accounts upon changing jobs.

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

Why helping employees review 401(k)s isn’t a mission impossible

Posted by Spencer Williams on Sep 20, 2016 8:15:00 AM

 

Hey, plan sponsors: Imagine for a moment that your active participants are Tom Cruise from Mission: Impossible (or Barbara Bain, Peter Graves and Martin Landau, for those of us who remember the classic TV series).

The mission that you present to participants, should they choose to accept it, is to review their plan investments and make adjustments as necessary on a quarterly basis—and review plan summaries, and make necessary updates, on an annual basis.

Each quarterly and annual communication you send to participants typically comes with a laundry list of tasks. The “to-do” list for participants includes checking for changes to plan fees, analyzing investment performance and deciding whether or not to maintain their asset allocation, gauging progress toward retirement income targets, possibly making adjustments to maximize employer matches and escalate deferrals, checking for new plan provisions, updating their contact details if they have moved, and more.


How many of your active plan participants can you rely on to complete this full “to-do” list once a year? Very few—and even fewer can be expected do so once a quarter. 


If completion of this challenge is a “Mission: Improbable” for active plan participants, it’s an even bigger “Mission: Improbable” for inactive or terminated plan participants. If most participants are unlikely to do all that their current-employer plans ask of them, they’re even less likely to regularly review the 401(k) savings accounts and IRAs they left behind in prior-employer plans. The Employee Benefit Research Institute estimates that the average American will change jobs more than seven times during their working life. Do you really think a participant with seven or more retirement savings accounts is going to review them all on an annual basis?

And since most active and inactive participants can’t be expected to perform all the tasks related to plan review even once a year, how can they be expected to do so every quarter?

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

Why retirement portability should become employers’ next big focus

Posted by Spencer Williams on Sep 7, 2016 9:19:57 AM

 

Have you ever received a letter with the notice “Time Sensitive Material! Open Immediately!” boldly splashed across the outside of the envelope, only to sigh with disappointment with what’s on the inside?  While the disappointment of false advertising so often seems to be the case with “junk mail,” the warning turns out to be true when we examine the behaviors of retirement plan participants who have recently changed jobs.

In 2008, Retirement Clearinghouse began collecting data on participants’ distribution decisions for a large hospital services company’s plan, with more than 230,000 employees and as many as 45,000 participants who changed jobs each year.  In every instance, we recorded both the date of termination and the date that the participant made their distribution decision, so that we could accurately report the elapsed time between those dates.  We continued to collect the data over the ensuing eight years, an accumulation of more than 300,000 individual decisions that offers actionable insight into participant behaviors at the time of a job change.

As the headline suggests, one key finding from the data is that a significant majority (65%) of participants will make their distribution decision within the first 365 days of their termination from their former employer (illustrated in the chart below). In subsequent periods, the percentage of participants making distribution decisions drops precipitously, to less than 6% in Year 2, 3.5% in Year 3 and 2.4% in Year 4.

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

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