Thomas Hawkins

I’m old enough to remember a time when auto portability was a concept, scarcely worthy of serious attention by practically anyone except a few zealots with an idea.

For years, regulators, policymakers and, of course, 401(k) plan sponsors have struggled with the vexing problems of missing participants, uncashed distribution checks and small, forgotten accounts. Every year, sponsors beseech regulators for clear guidance to mitigate their fiduciary risk, while lawmakers propose policies such as lost and found registries to help deal with the problems. Yet, the problems persist and have grown worse over time, even accelerating recently due to The Great Resignation.

Despite my being a long-time, unabashed proponent of auto portability – the new plan feature that provides seamless, end-to-end portability for small 401(k) retirement savings accounts – it’s always felt like an uphill battle to bring about its widespread adoption in our 401(k) system.

While that battle is by no means over, in late 2021, I finally accepted and now firmly believe that auto portability is, in fact, inevitable.

On 12/6/21, the Employee Benefit Research Institute (EBRI) conducted day 1 of their two-day 90^th Annual Public Policy Forum.  This forum’s theme was “A Path to a More Equitable Solution: Solving the Retirement Coverage Gap” and it seems to have been highly popular, as it broke EBRI’s previous record for forum attendance. 

Auto portability is a new “automatic” plan feature rapidly gaining acceptance by large defined contribution recordkeepers. While the feature is relatively new, it’s tempting to view auto portability as an “overnight success.” In fact, auto portability has been a long time in the making.  In the article and in the embedded video below, please enjoy a “brief history” of auto portability.

Auto portability can’t wait.

There are four key reasons why the new plan feature that automatically moves small balance retirement savings forward as 401(k) participants change jobs can wait no longer.

Auto portability is a new “automatic” plan feature that is rapidly gaining acceptance by large defined contribution recordkeepers serving almost 10 million participants. While the feature is relatively new, it has received a great deal of attention in the media and has also been the beneficiary of definitive regulatory guidance, promulgated by the Department of Labor (DOL).

In a 9/13/21 Employee Benefit Research Institute (EBRI) webinar (The Impact of Proposed Legislative Changes on Retirement Income Adequacy), EBRI Research Director Jack VanDerhei presented an analysis of pending legislative changes, including automatic contribution plans and arrangements (ACPAs), paired with a refundable saver’s credit.

At first glance, some retirement savings public policies can seem like a sure thing, particularly when they’re based solely upon the benefits that would directly result. However, in the real world, these “first order” effects are inevitably followed by “second order” effects, which can sometimes be antithetical to the policy’s original intent.

Most agree – automatic rollover programs can help plan sponsors deal with problems associated with small-balance accounts, including:

• ​High levels of missing participants
• Increased administrative costs and workload
• Increased recordkeeping fees
• Lower average account balances