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).
Consolidation Corner Blog
Consolidation Corner is the Retirement Clearinghouse (RCH) blog, and features the latest articles and bylines from our executives, addressing important retirement savings portability topics.
During testimony in a July 28th 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.
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.
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.”
Financial wellness has taken on a new urgency over the past year as we have witnessed a series of “once-in-a-lifetime” events that affect how we work and save for retirement. In response, many plan sponsors have adopted new and important tools to strengthen the financial wellbeing of their participants.
America’s 401(k) system, long plagued by friction, produces $92.4 billion of excessive cash-out leakage annually. In recent years and culminating in 2021, the private sector has finally “cracked the code” and is delivering innovative fintech solutions, combined with education and personal assistance to reduce friction and to enable true 401(k) portability.