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

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

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

The ABCs of Auto Portability

Posted by Thomas Hawkins on Jan 19, 2017 3:53:20 PM



This video presentation is designed to give the viewer a basic understanding of Auto Portability.


What is Auto Portability?

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. 
  • Serves the needs of participants subject to mandatory distribution provisions of their employer-sponsored plan (separated participants with account balances less than $5,000) to curb excessive cash out leakage occurring as participants change jobs.
  • Could be adapted to larger account balances, should public policy dictate a higher mandatory distribution limit.


Why is Auto Portability needed?

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Topics: Auto Portability, Managed Portability, Roll-In, Lifetime Plan Participation, Retirement Savings Portability, Thought Leadership, PSCA, Participant transition management

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

The ABCs of Uncashed 401(k) Distribution Checks

Posted by Thomas Hawkins on Nov 21, 2016 10:22:04 AM


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This video presentation is designed to give the viewer a basic understanding of the problem of uncashed 401(k) distribution checks.

What are uncashed distribution checks, and why should I care?

Uncashed distribution checks occur when retirement plan participants fail to cash or deposit a distribution from their qualified retirement savings account, for a variety of reasons, including:

  • an incorrect mailing address
  • a lost or misplaced physical check
  • a distribution check that was not anticipated 
  • as the result of inaction on the part of the participant  

Uncashed distribution checks are a growing problem for plan sponsors, as the numbers of small-balance accounts and separated participants grow. For qualified plans, uncashed distribution checks can represent a fiduciary liability, since the amounts must be considered plan assets until the check is cashed or otherwise resolved. Over time, the numbers of uncashed checks can mount, along with the administrative burden and fiduciary risk.

Plans can take steps to minimize the incidence of uncashed distribution checks, as well as to resolve the situations that inevitably occur.

Why do uncashed distribution checks occur?

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Topics: Managed Portability, Roll-In, Retirement Savings Portability, Participant transition management, Stale Dated Checks

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

What Plan Sponsors Can Do to Plug 401(k) Plan Leakage

Posted by Thomas Hawkins on Nov 4, 2016 8:01:42 AM


This video presentation is designed to provide qualified retirement plan sponsors with an overview of key actions that they can take in order to help reduce 401(k) plan leakage.

Why is 401(k) Plan Leakage a Problem?
401(k) leakage is a large -- and growing – problem: 

  • Every year, the GAO estimates that billions of dollars of retirement savings are prematurely removed from our nation’s defined contribution plans.
  • Leakage studies by large recordkeepers tell a consistently grim story, including cashout levels as high as 60% at job change, depending upon the balance segment.
  • EBRI estimates that, if cashout leakage were reduced by just one-half, we would add over $1.3 trillion in retirement savings in just over 10 years.

Fortunately, there are concrete, proven steps that plan sponsors can take that will not only reduce leakage, but can increase participants’ retirement readiness, streamline your plan and trim your administrative burden.

1. Recognize the big leakage problem: cashouts at job change
Plan sponsors should understand that:

  • 89% of leakage comes in the form of cashouts that occur post-separation1, when job-changing Americans confront a system that makes it difficult to easily transfer their retirement savings from one plan to the next.
  • This lack of portability means that cashing out is a huge temptation. Almost 2/3 of separated participants who cash out are doing so for reasons other than economic hardship2.  Most participants who cash out will regret it later
  • Those who don’t cash out can often leave small, stranded 401(k) balances behind.
    1 -  GAO, Report to the Chairman, Senate Committee on Aging, August 2009
    2 -  Boston Research Technologies, Actionable Insights for America’s Mobile Workforce, May 2015

So what can plan sponsors do? Let’s look first at newly-separated plan participants.

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Topics: Managed Portability, Roll-In, Retirement Savings Portability, Participant transition management

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