Thomas Hawkins

Missing participants, defined as individuals who have become disconnected from their retirement savings – often through their own inaction – are a significant challenge that has long plagued defined contribution plans.  Unfortunately, the responsibility for locating these persons falls squarely on the shoulders of plan sponsors.

No retirement plan sponsor likes the idea of dealing with uncashed distribution checks, nor do they wish to draw unwanted regulatory attention or to become embroiled in costly litigation because of their uncashed check policies.

Unfortunately, many plan sponsors place themselves in precisely that spot, becoming unnecessarily over-burdened with unresolved uncashed checks, while inviting unwanted regulatory scrutiny and/or legal challenges by embracing flawed uncashed check policies.

A more-enlightened approach to managing the problem of uncashed checks seeks to minimize their numbers, while simultaneously steering clear of the “red flags” that could land them in hot water.

Policymakers and stakeholders in America’s defined contribution system have made important progress in advancing initiatives that could help to close the large racial wealth gap. While much of the groundwork has been laid, it will ultimately fall to retirement plan sponsors to make the difference by supporting four key retirement initiatives that will generate increased wealth and enhance retirement security for millions of America’s minority workers.

On the heels of the 11/7/23 announcement by the Portability Services Network that the industry-led consortium has launched its digital auto portability solution powered by Retirement Clearinghouse (RCH), RCH has made available the results from a new version of their Auto Portability Simulation (APS), a discrete event simulation that models the adoption of auto portability within America’s defined contribution system, over a 40-year period.

It’s sometimes easy to forget a basic tenet about auto portability.

Auto portability is about the participants.

And not just any participants. Auto portability is about the participants who truly need it, and – according to multiple surveys – have expressed a strong preference for it.

In horror movies, embattled humans facing a zombie apocalypse eventually realize that no one is coming to save them and must take decisive action to save themselves from oblivion.

There’s a lesson here for plan sponsors who must confront the problem of locating missing participants.

In the near-term, there’s likely nothing that will spare plan sponsors from addressing the missing participant problem head-on. In the face of uncertainty, they must take decisive action to avoid being overwhelmed, including implementing effective, common-sense search practices, and pairing those search practices with other actions that will minimize the incidence of missing participants over time.

When the Portability Services Network (PSN) goes live at the beginning of the fourth quarter of 2023, the focus of attention for auto portability will shift from the industry-led network of service providers to the leading plan sponsors who will begin adopting the new plan feature.

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

As we draw nearer to the 4^th quarter of every year, many plan sponsors – for a variety of reasons – are faced with the prospect of a 401(k) plan termination.  For most, this will be the first -- and only -- time that they’ll undertake this important project. 

If you’re facing a plan termination in the current calendar year, time is not on your side.  A properly-conducted plan termination can take up to 2-3 months from start-to-finish, and requires significant planning, flawless execution and lots of attention to detail. 

While small-balance retirement savings accounts have fared poorly in the past, their future has never looked brighter. Real progress is being made in reducing their numbers while simultaneously preserving and consolidating their savings, vs. previous “solutions” that encouraged them to cash out or exiled them to dead-end safe harbor IRAs.

The increase in the automatic rollover threshold from $5,000 to $7,000, as provided for in section 304 of the SECURE 2.0 legislation, will become effective for mandatory distributions made after December 31, 2023.

What will be the impact of these provisions, if fully embraced by plan sponsors? One thing is certain – on both a one-time and ongoing basis, far more terminated participants will be subject to the automatic rollover provisions of their former-employers’ plans.