A Happy Ending for Consenting 401(k) Participants

By Thomas Hawkins
Published on July 1, 2021

Happy EndingFor consenting 401(k) participants, it seems that “happy endings” are possible.

New, compelling data from an ongoing program of portability for small-balance 401(k) job-changers illustrates the effectiveness and appeal of seamless portability, revealing broader implications for auto portability and for all job-changing 401(k) participants, regardless of balance.
The availability of portability solutions for all balances – whether automatic or based upon participant consent – remains the single most effective solution to the persistent systemic problems of cashout leakage, missing participants and forgotten accounts, while making a significant contribution towards reducing the retirement cybersecurity threat.

About the Data
In July 2017, Retirement Clearinghouse (RCH) launched a “beta” program of auto portability at a mega 401(k) plan sponsor (250,000+ participants) that included all of auto portability’s key technology components, but required affirmative consent from participants in order to consolidate their safe harbor IRA balances into the target plan.

In November 2017, Boston Research Technologies documented early experience with the program in their white paper “Making the Right Choice the Easiest Choice: Eliminating Friction and Leaks in America’s Defined Contribution System.” The study found that, for the one 401(k) plan, 2.5% of all safe harbor IRA accounts were matched to active accounts in the target sponsor’s plan. For those accounts that were matched, RCH was able to get an affirmative response from 15% of the matches, which further resulted in automatic roll-ins for 91% of responders, even for small balances under $1,000.

Now, three years later, the results are even more dramatic. Measured in June 2021, the data reveals an effective doubling of match & response rates, as well as a surge in affirmative consent rates that result in frictionless automatic roll-ins. RCH has been able to match 5% of all safe harbor IRAs, obtain responses from 29% of those matches, and execute automatic roll-ins for 99% of responders.

Figure 1: Program Response Rates Through June 2021
PrgmResponseRates062021

There are three key takeaways from the data:

  1. Ongoing, frequent job-changing repeatedly places a significant percentage of safe harbor IRA accountholders in a position to have their balances automatically located and matched to an active account in their current-employer’s plan.
  2. For safe harbor IRA accountholders who are matched, ongoing exposure to offers to consolidate eventually resonates, increasing consent rates over time – even for those participants who may have previously declined.
  3. Consolidation is attractive, even to very small balance accounts, and even when the accountholder voluntarily pays the consolidation fee from their account balance. For consolidations under the program, the median account balance is $995.


The Broader Implications of Consent-Based Portability
This data, and the consent-based portability model that it represents, has important, broader implications for the success of auto portability, as well as the prospects for plan-to-plan portability across all balances.

Implications for Auto Portability:
As auto portability transitions from partial to full adoption, consent-based portability as described above will help bridge the gap. Specifically, those safe harbor IRA accountholders whose balances originate from a non-adopting plan sponsor and/or recordkeeper can still avail themselves of auto portability’s benefits and have their account quickly and frictionlessly consolidated when they provide their consent.

Not only will these accountholders benefit from the “nearly-automatic” portability that results, receiving plan sponsors and recordkeepers within the auto portability network will benefit from a significant, non-network source of roll-ins.

Implications for the Portability of Larger Balances:
It stands to reason that the appeal of frictionless portability observed in small-balance segments indicates a pent-up demand for this type of portability across all balances, including balances that are not subject to being forced out of their former employer’s plan.

From a technical perspective, there is no reason that these larger balance segments cannot be provided a similar, consent-based consolidation experience that leverages the location, matching and automatic roll-in features of auto portability.

Implications for Cybersecurity of Retirement Savings:
Plan-to-plan portability, by repeatedly consolidating two or more accounts into one, effectively reduces the cybersecurity “attack surface” for participants, plan sponsors and service providers, and minimizes opportunities for fraudulent behavior.

Portability, Participants and Public Policy
A broad program of plan-to-plan portability, including auto portability and seamless consent-based portability, is the only solution that can practically and effectively address the problems of cashout leakage, missing participants and forgotten accounts. No other program or public policy even comes close, including the proposed establishment of a retirement savings “lost and found.” Crucially, any public policy that seeks to expand access to workplace retirement savings accounts is certain to experience sub-optimal results unless it builds in portability, up-front.

Finally, and perhaps most importantly, 401(k) participants themselves overwhelmingly want portability. In EBRI’s 2021 Retirement Confidence Survey, nearly 9 in 10 participants viewed the automatic transfer of their retirement savings following a job change as a valuable feature. For them, portability brings about the happy ending they desire.

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