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.
As with any new plan feature in the retirement industry, getting to full adoption may take some time. Occasionally, nay-sayers offer the opinion that anything short of total adoption constitutes an untenable condition, where small-balance job-changers’ balances will remain in limbo indefinitely, languishing in dead-end safe harbor IRAs with no way out.
On the contrary, real world data indicates that auto portability will happily co-exist with “authorized” portability, a hybrid form of small-balance portability that will easily bridge the gap during auto portability’s adoption phase and beyond.
What is Authorized Portability?
Authorized portability is a term describing a form of consent-based portability occurring only in the context of former plan participants whose small balances have been forced out of their plan and into safe harbor IRAs by plan sponsors and/or recordkeepers who are not yet part of the auto portability network.
While not technically part of an end-to-end auto portability connection, these accountholders can still avail themselves of auto portability’s benefits and have their account quickly and frictionlessly consolidated.
Here’s how:
- Like auto portability, these former participants’ safe harbor IRAs will be periodically subject to a locate-and-match process to determine if they are a participant in a plan within the auto portability network of plans & providers.
- When confirmed matches occur, these safe harbor IRA accountholders will be notified and their authorization will be requested to proceed with consolidation to their new, auto portability-enabled plan.
- Participants quickly and easily authorize consolidation through multiple channels, including over the internet, through interactive voice response (IVR) or by speaking with a call center representative.
- Once authorized, their safe harbor IRA balance will be transferred into their active plan via a frictionless, fully automated roll-in process.
Authorized Portability in Action
We are highly confident that authorized portability will work because it’s essentially been operating for almost four years, and the results speak for themselves.
In June 2017, Retirement Clearinghouse (RCH) implemented a “beta” version of auto portability at a mega plan sponsor (250,000+ participants) that included all of auto portability’s key technology components but required affirmative consent for participants to consolidate their safe harbor IRA balances into the target plan. In December 2017, our relatively brief experience with this arrangement was documented by Boston Research Technologies in their white paper “Making the Right Choice the Easiest Choice.”
After 4 years of experience, the results keep improving. RCH has been able to match 5% of all safe harbor IRAs originating from various plans, obtain responses from 29% of the matches, and effect fully automated roll-ins for 99% of the responders.
Implications for Auto Portability
When end-to-end auto portability is combined with authorized portability, a much larger population of safe harbor IRA accountholders will benefit from “nearly-automatic” consolidation. Not only that, plan sponsors and recordkeepers within the auto portability network will benefit from a significant, non-network source of roll-ins. That is a win-win-win for participants, for plan sponsors and for adopting recordkeepers.
Full adoption of auto portability is inevitable, but it will not be painful. The recent experience with “authorized” portability indicates that the adoption process will go smoothly for everyone.