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.
A Fast and Furious Sequence of Events
Given the pace of recent and highly remarkable events associated with auto portability, it’s easy to get a bit ungrounded.
These events include:
- The formation of the retirement industry-led Portability Services Network (PSN) in October 2022
- In 2023, the addition of three new recordkeepers to round out the PSN ownership and governance group, increasing market coverage to 63%
- In late 2023, the announcement of the operational launch of PSN Auto Portability
One could be forgiven for focusing on these events, because quite frankly, there is simply no precedent for this type of collaborative action in the retirement services industry.
It’s For the Participants
However, the fact remains that these actions are driven by the industry’s sincere desire to improve the retirement security of marginalized defined contribution participants. Specifically, auto portability addresses the needs of small-balance retirement savers (below $7,000) who frequently change jobs and become subject to their former-employer’s mandatory distribution provisions.
Most often, these small-balance job-changers:
- Are minorities and/or women
- Have lower incomes
- Are younger
- Cash out much more frequently than their higher-balance counterparts
A simple graphic illustrates the effects of preserving 1-3 $7,000 balances on future retirement income:
Figure 1: Effect of Preserving Small Balances on Future Retirement Income Under Multiple Job-Changing Scenarios
Participants Want Auto Portability
While there’s unanimity on the participants who will benefit the most from auto portability, you might be surprised to learn that participants want auto portability as well.
There are at least three highly credible surveys that reveal participants’ strong preferences for auto portability:
- In March 2018, a Boston Research Technologies study (The Mobile Workforce’s Missing Participant Problem) surveyed 1,000 consumers who had participated in at least one workplace retirement plan in the past and found that 60% of participants preferred an automated process to update their address or to consolidate their accounts.
- In April 2021, EBRI’s 31st Annual Retirement Confidence Survey (RCS) found that nearly 9 of 10 respondents indicating that auto portability would be valuable. Even more compelling, the RCS also found that the demographic segments that stand to benefit the most from auto portability – minorities, younger age groups and lower-income segments – value the feature even more.
- In April 2022, EBRI’s 2022 Retirement Confidence Survey (RCS) further revealed that a plurality of job-changing 401(k) plan participants favored automatic plan-to-plan portability over consolidating their savings to an IRA, or leaving their savings behind in their former employer’s plan.
Paying Attention to Participants
Ultimately, auto portability is about paying attention to the needs and desires of the most marginalized defined contribution participants. If the entire defined contribution ecosystem can come together and take collaborative action on their behalf, it augurs well for Americans’ retirement security.