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. By dramatically reducing cashouts and improving retirement readiness, Auto Portability will deliver broad benefits to America’s defined contribution system, its participants and to the entire American economy.
But who benefits from Auto Portability, and how?
America’s Mobile Workforce
The ultimate beneficiary of Auto Portability is America’s mobile workforce – the qualified plan participants whose retirement savings are preserved.
Half a century ago, the global medical community united to wipe out smallpox, an infectious disease that afflicted mankind for millennia. In 1966, the World Health Organization (WHO) established the Smallpox Eradication Programme, which sent Western doctors to vaccinate the populations of nations and communities around the globe where smallpox was still rampant. No place where smallpox cases had been reported, or where the local population was not vaccinated, was overlooked by WHO medical teams, no matter how remote the village or how dangerous the journey.
The rallying cry of doctors, medical researchers, healthcare professionals, and government officials across the world was, “Eradicate smallpox in our time!”
By 1980, after just 14 years of intense global collaboration, smallpox had been eradicated. The magnitude of this achievement cannot be overstated.
The EBRI Policy Forum’s theme was “Retirement Policy Directions in 2017 and Beyond” and showcased the topic "Retirement Plan Portability & Public Policy" -- featuring presenters Jack VanDerhei, EBRI Research Director and Spencer Williams, Retirement Clearinghouse's President & CEO. Together, their presentations provided the latest information and research supporting retirement savings portability, including EBRI research that projects $2 trillion in benefits resulting from the adoption of full Auto Portability.
In 1989, New York real estate developer Seymour Durst wanted to highlight America’s rising national debt, and came up with an idea: the National Debt Clock. Since then, the National Debt Clock has had a physical presence as a billboard near Times Square, serving as a constant reminder to Americans of their government’s ever-growing debt.
As of May 12th, the clock indicates that total cash out leakage for 2017 has reached $24.4 billion. If no action is taken to stem this outflow of funds, cash out leakage will eventually reach $68 billion by year’s end.
Please visit here for the full agenda. To register, please visit here.
The 80th EBRI-ERF Policy Forum’s theme is “Retirement Policy Directions in 2017 and Beyond” and takes on critical retirement policy issues, moderated by an all-star lineup of speakers, including:
Retirement Plan Portability & Public Policy (Jack VanDerhei, EBRI Research Director and Spencer Williams, Retirement Clearinghouse President & CEO)
The Lillywhite Award (Olivia S. Mitchell, Economist and International Foundation of Employee Benefit Plans Professor at The Wharton School)
What’s Enough? A Conceptual and Empirical Investigation of Retirement Adequacy (Peter J. Brady, Senior Economist, Retirement and Investor Research Division, Investment Company Institute)
Fixing the Saver’s Credit and Other Ways to Help At-Risk Workers (Catherine Collison, President, Transamerica Institute and Transamerica Center for Retirement Studies)
EBRI Research – Update (Jack VanDerhei, EBRI Research Director, Craig Copeland, Senior Research Associate and Sudipto Banerjee, Research Associate)
Whether you’re an EBRI sponsor, congressional or executive branch staff, a benefits expert, a representative from academia, or affiliated with an interest group, the Policy Forum is an ideal opportunity to examine public policy issues, supported by the latest in EBRI research.
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.
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.
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.
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.
Individuals should consult their tax advisers or legal counsel for advice and information concerning their particular situation. Retirement Clearinghouse does not give legal, investment, or tax advice. IRA account fees and product information provided by Retirement Clearinghouse, LLC is subject to change without notice at the discretion of the IRA Provider. The financial institutions on the Retirement Clearinghouse marketplace provider network are solely responsible for their products and service. Securities are offered through RCH Securities, LLC, a wholly owned subsidiary of Retirement Clearinghouse, LLC and a member of FINRA (www.finra.org). Rollover Counselors with The Retirement Center are Registered Representatives of RCH Securities, LLC. RCH Shareholder Services is a wholly owned subsidiary of Retirement Clearinghouse, LLC and a registered transfer agent with the U.S. Securities and Exchange Commission.