Blog

At Retirement Clearinghouse (RCH), we’re excited about the 2020 prospects for auto portability.  Before we’re too far into a new decade, we wanted to pause, take a breath and share with you some highlights from 2019, a year that’s positioned the newest automatic, default plan feature for widespread adoption.
 

Although the financial wellness of employees has emerged as a top priority for employers in recent years, too many workers are still struggling to improve their financial health.

Fifteen years ago, when safe-harbor IRAs were first proposed as a destination for small, stranded 401(k) accounts that can be automatically rolled out of plans, then-U.S. Assistant Secretary of Labor Ann L. Combs spelled out what these investment vehicles were supposed to accomplish.

401(k) account cash-outs remain a potent threat to Americans’ retirement-readiness and by all accounts the U.S. Department of Labor agrees, having issued its final Prohibited Transaction Exemption (PTE) for auto portability at the end of July.

Cashout leakage, a long-standing problem in America’s defined contribution system, is a silent crisis that unnecessarily robs millions of Americans of a comfortable, timely or secure retirement.  Plagued by misunderstanding and neglect, it’s vitally important to understand the problem and to take decisive action to curb it.  The third of a five-part series, this article addresses the magnitude of the 401(k) cashout leakage problem.

On July 31st, the U.S. Department of Labor (DOL) released the final Prohibited Transaction Exemption (PTE) to Retirement Clearinghouse (RCH) for the RCH Auto Portability program, completing the regulatory framework and clearing the way for auto portability’s widespread adoption.   

This new development represents an important milestone on the path to auto portability, a private-sector innovation that will help prevent 401(k) cashout leakage, increase plan efficiencies and improve the prospects of a timely, comfortable and secure retirement for millions of Americans.

Cashout leakage, a long-standing problem in America’s defined contribution system, is a silent crisis that unnecessarily robs millions of Americans of a comfortable, timely or secure retirement.  Plagued by misunderstanding and neglect, it’s vitally important to understand the problem and to take decisive action to curb it.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, passed by the House of Representatives on May 23, has the potential to make a positive impact on Americans’ retirement readiness. One of the bill’s key provisions involves removing restrictions on open multiple employer plans (MEPs), which would make it less costly for small businesses to offer retirement savings plans to employees.

Cashout leakage, a long-standing problem in America’s defined contribution system, is a silent crisis that unnecessarily robs millions of Americans of a comfortable, timely or secure retirement.  Plagued by misunderstanding and neglect, it’s vitally important to understand the problem and to take decisive action to curb it.

The first of a five-part series, this article addresses the fundamentals of cashout leakage.

When evaluating their defined contribution plans, plan sponsors understandably look at standard benchmarks such as rate of participation, average deferral percentage, and average account balance. However, given the highly mobile nature of today’s American workforce, sponsors should also consider tracking the average percentage of retirement savings that participants retain during their job tenure, and when they leave to join another employer.