Increasingly, 401(k) plans have become more-and-more “institutionalized” – reflected by an increased level of sophistication in investment options, coupled with a downward trend in fees.
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.
At Retirement Clearinghouse (RCH), we’re excited about the 2020 prospects for auto portability. Before we’re too far into a new decade, we wanted to pause, take a breath and share with you some highlights from 2019, a year that’s positioned the newest automatic, default plan feature for widespread adoption.
Sponsors of active retirement plans are increasingly challenged by the problem of missing participants, and the difficulties they face in performing diligent searches. After all, ensuring that plan participants (or their beneficiaries) receive the benefits they’re owed is a sponsor’s primary fiduciary responsibility.
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.
Today, Boston Research Technologies (BRT) and Retirement Clearinghouse (RCH) issued a joint press release announcing the key findings from a survey examining the retirement industry’s missing participant problem. The survey, The Mobile Workforce’s Missing Participant Problem, is the first to examine the problem from the perspective of the participant and offers unique insights into its various dimensions.
In late 2017, retirement industry observers breathed a collective sigh of relief when “Rothification” of 401(k) plans, once considered as a part of new tax legislation, was abandoned. With Rothification in the rear-view mirror, policymakers have begun turning their attention to other, more-promising initiatives.
Today, it’s commonly-accepted practice for retirement plan sponsors to focus on three major initiatives to promote retirement adequacy: participation, saving and diversification.
While these three initiatives are proven, an emerging best practice is for plan sponsors to expand this list, incorporating consolidation, where plan participants are encouraged to consolidate balances from former employers’ plans, using their current-employer’s plan to manage their retirement savings.
It’s become widely-accepted that retirement savings portability is proven to address the small account problem for 401(k) plan sponsors, as well as preserve participants’ savings currently lost to cashout leakage.
However, the concept of retirement savings portability is relatively new. At year’s end, most plan sponsors’ attention will be focused on other plan design issues, such as auto enrollment/escalation, the lineup of investment options, enrollment, education, retirement income solutions and so forth.
In January 2016, this blog published a post on the November 2015 letter from Senator Patty Murray (D–WA) of the Senate HELP committee, signed by a bicameral group of Congressional members, urging then Department of Labor (DOL) Secretary Thomas Perez to encourage the DOL’s Employee Benefits Security Administration to issue guidance on 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. 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?