Consolidation Corner

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.
 

The Securing a Strong Retirement Act of 2021, nicknamed the “SECURE (Setting Every Community Up for Retirement Enhancement) Act 2.0,” was passed unanimously by the House Ways and Means Committee, and many expect the bill to pass the full House of Representatives.

For consenting 401(k) participants, it seems that “happy endings” are possible.

New, compelling data from an ongoing program of portability for small-balance 401(k) job-changers illustrates the effectiveness and appeal of seamless portability, revealing broader implications for auto portability and for all job-changing 401(k) participants, regardless of balance.

Draft SECURE 2.0 legislation that provides for a PBGC-based Retirement Savings Office of the Lost and Found, along with the May release of a drama-laden white paper, could leave casual observers with the mistaken impression there is a massive problem with “forgotten” 401(k) accounts.
 

Past proposals for an Office of the Retirement Savings Lost and Found (“Lost & Found”) offered good examples of how the federal government could serve an important, ancillary role alongside the private sector in our nation’s 401(k) system.

On May 13, 2021, the U.S. Senate’s Committee on Health, Education, Labor and Pensions (HELP) held its first hearing on retirement security since 2013. With testimony from a blue-ribbon panel of witnesses, the hearing had a broad focus, but the topic of retirement savings leakage, and its most-promising solution, auto portability, were prominently featured.

Arriving with little fanfare, a recent study prepared by the Staff of the Joint Committee on Taxation, a nonpartisan committee of the United States Congress, confirms the findings of earlier research on cashout leakage – namely, that cashout leakage is a big problem, is driven by job changing, and is exacerbated by "forced distributions and [a lack of] portability of plans.”