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.
Finally, as auto portability demonstrates its obvious benefits to plans, to participants and to society at large, it could soon become a de facto plan feature – serving as a positive indicator of a socially responsible enterprise.
Building Out the Portability Services Network
I don’t speak for PSN, a retirement industry-led utility dedicated to the widespread adoption of auto portability – but, in my view, what has transpired with PSN is nothing short of phenomenal.
In less than a year since its big announcement in October 2022, PSN has assembled within the highly competitive defined contribution recordkeeping community a full slate of six owner member recordkeepers, representing approximately 82 million workers across more than 185,000 employer-sponsored retirement plans, or around 63% of the market, on a participant basis. That number will continue to grow as additional recordkeepers join the network.
Meanwhile, integration had proceeded apace with network building. At least 3 of the 6 recordkeepers should complete their integration of auto portability, making it ready for plan sponsor adoption in 2023.
The Shift to Plan Sponsors
With commencement of operations, plan sponsors will take center stage as they begin to adopt auto portability and witness its tangible results.
While very few things progress rapidly in the retirement industry, there is good reason to believe that auto portability’s adoption will move quickly.
That’s because auto portability has a long list of benefits, but nothing in the way of detriments, including:
- No cost to plan sponsors, and a very modest one-time effort to adopt
- Significant plan-level benefits, particularly for plans that have already adopted (or are considering adopting) automatic enrollment
- Outstanding participant benefits, particularly for lower-income, minority and women participants who tend to disproportionately cash out small balances following a job change.
Unlike many environmental, social and governance (ESG) initiatives that have little or no discernable impact in generating actual “green” for future retirees, auto portability delivers broad societal benefits precisely because it protects and preserves so much in the way of retirement savings, and specifically for the demographic segments that need it the most.
EBRI has projected auto portability’s benefits, estimating that it will deliver $1.5 trillion in incremental savings, valued in today’s dollars, for balances under $5,000. No doubt those benefits will increase when the upper limit for mandatory distributions increases to $7,000, effective 12/31/2023.
Perhaps that’s why auto portability has received the endorsements of two premier civil rights organizations – the National Urban League, and the National Association for the Advancement of Colored People (NAACP) – both with over a century of experience advocating for solutions that address the inequities and economic challenges experienced by Black Americans and by other communities of color.
Charting a New Course
When it becomes abundantly clear to plan sponsors that auto portability represents a quantum leap over tired, expired “traditional” automatic rollovers, and that socially responsible plan sponsors are charting a new course, then the plan sponsor shift will be complete.