RCH Consolidation Corner

Four Compelling Reasons for Plan Sponsors to Adopt Auto Portability

Written by Thomas Hawkins | September 5, 2024

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.

1. You Won’t Be the First

Auto portability has already been embraced by PSN, an industry-led consortium of recordkeepers with a 63% market share of defined contribution participants, and with more member recordkeepers on the way. It is truly an unprecedented industry vote of confidence in auto portability.

Auto portability has also been codified into law by SECURE 2.0, and has been subject to significant regulatory scrutiny and rule-making that clearly delineate fiduciary roles and responsibilities, while establishing clear, participant-protective guardrails.

Still, when it comes to adoption of any new plan feature, many plan sponsors tend to be somewhat risk-averse, preferring not to be early adopters, and deciding instead to wait-and-see how things pan out.

The good news for these plan sponsors is that service providers, legislators and regulators have all decisively weighed in on auto portability, and now, thousands of plan sponsors have already adopted.

It’s now safe to say that no plan sponsor will find themselves out on a limb when choosing to adopt auto portability.

2. You’ll be Acting in Your Plan’s Self-Interest

Sometimes, there’s no better way to convince would-be adopters than to examine how auto portability advances their own self-interests. Here, auto portability really delivers.

It is within the clear self-interest of plan sponsors to:

  • Reduce the overall number of terminated small-balance accounts in their plan. These accounts drive up administrative costs and can increase the incidence of missing participants. Because auto portability relies upon the plan’s adoption of an automatic rollover provision, auto portability works with a plan’s force-out provisions. If the plan cashes out balances under $1,000, they can include those accounts in their auto portability program and mitigate uncashed check issues.
  • Improve plan metrics and increase average balances. Auto portability also brings small balances into the plan when new participants’ balances at former employers are matched to their current employers’ plan. By increasing plan assets and average balances, plan sponsors may ultimately reduce their plan fees. This clearly differentiates auto portability, when compared to having just a plan force-out provision.  

    To see how much auto portability could benefit your plan, visit the Auto Portability Plan Calculator.

 

3. You’ll Increase Participants’ Prospects for a Secure & Timely Retirement

By sponsoring a defined contribution plan, employers increase the odds that their employees will enjoy a secure and timely retirement.

By improving participant outcomes, auto portability further improves those odds, and supports a plan sponsor’s commitment to their past, present and future participants.

Auto portability achieves improved participant outcomes by:

  • Significantly reducing cashout leakage, by over 50% vs. traditional automatic rollover IRA programs
  • Delivering default, automatic portability to safe harbor IRA accountholders, greatly minimizing their stay in a safe harbor IRA
  • Automatically moving those funds back into the defined contribution system, where their savings stand the best chance of enjoying long-term growth as those balances would typically be defaulted to a target date fund, as opposed to a money market fund required in a safe harbor IRA for force outs
  • Delivering portability to traditionally under-served and under-saved demographic segments, including minorities, women, lower-income segments and younger workers

4. Your Participants Want Auto Portability

At least three surveys have revealed participants’ strong preferences for auto portability:

Make the Move

If you’ve been considering adopting auto portability, there’s no better time than now to make the move. You can start by talking to your recordkeeper. If your recordkeeper is a member of the Portability Services Network, they will be able to guide you through the adoption process. If your recordkeeper is not yet a member of PSN, let them know that you’re interested in adopting auto portability.

Either way, you’ll be taking an important step that’s squarely in the interests of your plan and your participants.