Consolidation Corner

A 10/28/21 hearing by the U.S. Senate’s Special Committee on Aging, titled A Financially Secure Future: Building a Stronger Retirement System for All Americans, was highly-focused on the problems of cashout leakage, as well as its most promising solution, auto portability.

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 press release issued 9/21/21, The Vanguard Group (“Vanguard”) announced it has engaged with Retirement Clearinghouse (RCH) to introduce the RCH Auto Portability program to their defined contribution plan sponsor clients in mid-2022.

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.

Concurrent with the COVID-19 pandemic, our elected representatives have been grappling with the issue of wealth disparities between America’s white and minority workers. Commendably, there has been bipartisan support in Washington, DC for measures to assist those who are historically under-served or under-saved in our national system for accumulating and incubating retirement savings.
 

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. 

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.

During testimony in a July 28^th hearing held by the Senate Finance Committee (Building on Bipartisan Retirement Legislation: How Can Congress Help?), Aliya Robinson, Senior Vice President of Retirement and Compensation Policy for the ERISA Advisory Committee (ERIC), twice voiced her support for auto portability, the new plan feature that automatically moves small balances to the new employer’s plan when participants change jobs.

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

When auto portability becomes ubiquitous in America’s 401(k) system, it will herald 100% fully automated, end-to-end portability for all small-balance job-changers.