At a time when terms like “inflation,” “gas prices,” “recession,” and “volatility” dominate chatter about the U.S. economy, plan sponsors and recordkeepers are likely fielding questions and concerns from participants. Every dollar counts when saving for a financially secure retirement, especially with the present volatility in the financial markets. But while investment fund options, asset classes, and fees are important for helping participants weather inflation and save more, there is another way that sponsors and recordkeepers can help participants protect, and increase, their retirement savings in the New Year—facilitate portability.

America’s Leading 401(k) Providers & Retirement Clearinghouse Collaborate to Implement a Nationwide Network for Auto Portability

The observance of National 401(k) Day on Friday, September 9^th is an opportunity to reflect on the long-running, highly successful public-private collaboration that has fostered the rapid ascendance of America’s 401(k) system.

It’s my belief that this partnership will continue to drive innovations that will expand and improve the 401(k) system for millions of Americans – not only helping them to save more but preserving more of their savings for retirement.

Retired Baby Boomers who are saving for retirement through defined contribution plans like 401(k)s are drawing down their savings faster than their counterparts in previous generations who had pensions and other defined benefit plans, according to recent industry research. And on top of that, Baby Boomers who may be relying solely on their defined contribution plans may wind up with less savings for retirement than their counterparts who waited longer to withdraw savings from their defined benefit plans—and could, therefore, outlive their nest eggs.

A newly proposed bill -- the Advancing Auto Portability Act of 2022, co-sponsored by Senators Tim Scott (R-S.C.) and Sherrod Brown (D-Ohio), will offer tax credits to plan sponsors who implement auto portability, and codify rules for an industrywide auto portability network. The bill is expected to be rolled into the Senate version of the bipartisan Securing a Strong Retirement Act of 2022, which passed the U.S. House of Representatives on March 29 of this year.

Here are five reasons why the new auto portability legislation introduced in the Senate is so important.

Over the past 15 years, a very large (250,000+ participants) 401(k) plan sponsor that our company has had the opportunity to serve has been highly successful in delivering improved participant outcomes by incrementally adopting a full program of retirement savings portability.

Were the plan’s experience set to music, it could be described as “401(k) Portability in Four Movements” – opening with discordant levels of cashout leakage but quickly building towards more satisfying participant outcomes, including substantial improvements in the preservation and consolidation of retirement savings.

I’m convinced that Auto IRA programs, despite their potential size and strength, suffer from an obvious Achilles’ heel: a lack of retirement savings portability.  

Without addressing their portability problem, Auto IRA programs could expand, but may never reach their full potential, housing large numbers of churning, small-balance accounts. However, with adequate support for portability both into and out of these programs, they could dramatically increase the odds that they deliver on their promise of building incremental retirement wealth for millions of Americans.

An interesting and valuable finding lies buried within EBRI’s 2022 Retirement Confidence Survey (RCS), but you won’t find it referenced in the organization’s initial report, officially released to the public on Thursday, April 28^th.

In an excerpt of a report available to survey partners, the RCS found that a plurality of job-changing 401(k) plan participants favored automatic plan-to-plan portability over consolidating their savings to an IRA, or leaving their savings behind in their former employer’s plan. This result comes on the heels of EBRI’s 2021 survey, which found that nearly 9 in 10 participants believed that auto portability would be valuable to them.

Last year marked the 15^th anniversary of the Pension Protection Act of 2006. This legislation included well-intentioned provisions for helping Americans increase their retirement savings, including the capability for defined contribution plan sponsors to automatically enroll employees in their plans. Despite the good intentions behind auto enrollment, and all the positive outcomes that have resulted, its introduction also coincided with high workforce mobility and a lack of seamless plan-to-plan savings portability, which has led to a surge in small, stranded 401(k) savings accounts.

For quite a while, a compelling case has been made for auto portability based on its positive impact upon America’s 401(k) system, including participants, plan sponsors, recordkeepers and asset managers – all of whom realize significant, quantifiable benefits when small-balance retirement savings are preserved within the 401(k) system.