Thomas Hawkins

Recently, we’ve read – mainly via paid promotions – about the existence of so-called “world-class” automatic rollover IRA services, which seem to be little more than old-school, traditional automatic rollover IRAs laying claim to unspecified, premium features.

With the release of Vanguard’s September 2024 study (Job transitions slow retirement savings), we can consider adding a new term – shrinkage – to the lexicon of retirement savings ills associated with America’s mobile workforce, taking its spot alongside its sibling, cashout leakage.

When it comes to locating missing plan participants, electronic searches or “e-searches” are an indispensable tool. While it’s been proven that e-searches can be highly effective, inevitably situations will arise where plan sponsors must do something more, and that typically involves performing a more intensive search, where additional search resources are applied to improve the quality of the search, over and above what an e-Search can deliver.

In July, an article noted that the adoption of auto portability was picking up steam with thousands of plan sponsors already signing up for the service, delivered by the Portability Service Network (PSN). As I write this around six weeks later, that figure continues to rise at a brisk pace.

As PSN operations have commenced, and as the automated plan-to-plan consolidation of small balances begins, a familiar industry adoption pattern is emerging – where innovators within the plan sponsor community lead the charge and are quickly followed by others.

For plan sponsors who are still considering adopting auto portability, here are four compelling reasons why you should move now to embrace the new plan feature.

Retirement Clearinghouse (RCH) has launched two new Saver’s Match resources, which offer plan sponsors, plan providers and participants with consolidated information about the Saver’s Match program, as well as a new saver-focused tool – the Saver’s Match Estimator – which will calculate an estimated matching contribution under the program.

According to industry data, each year around 2.5 million 401(k) participants with balances less than $1,000 will change jobs, falling under the threshold where plan sponsors can automatically cash out their balances.

When provisions of SECURE 2.0 were signed into law in December 2022, the clock started ticking on one of its most consequential retirement savings public policy initiatives – the Saver’s Match.

Protecting benefits owed to a company’s current and former employees is the cornerstone of an employer’s fiduciary duty under ERISA, which celebrates its 50th anniversary this year.

So, it troubles me when I read about strategies for plan optimization that advocate for continued reliance upon “old-school” automatic rollovers. While I am all-in for plan optimization, old-school automatic rollovers put employee benefits at risk by generating massive amounts of cashout leakage, stranding millions of participants’ balances in safe harbor IRAs that charge excessive fees and earn paltry returns, while disproportionately impacting minorities, women, low-income and younger workers.

Consolidation is a powerful force in our world. Many of the world’s largest corporations are products of consolidation, and there are countless examples of the power of consolidation in our personal lives.

A new survey of American workers who would be eligible to receive a Saver’s Match federal matching contribution confirms the significant public policy benefits that the program could have in leveling the playing field for lower income savers – particularly for Black and Hispanic workers – while also finding that high levels of worker mobility could pose challenges in administering millions of annual matching contribution payments.