Plan sponsors intuitively know that an explosion of small-balance 401(k) accounts held by terminated participants can create problems. Unfortunately, few sponsors are clear on the factors that give rise to small accounts, and fewer still understand how they can utilize consolidation programs to solve the problem.
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.
On May 22nd, at a Women’s Institute for a Secure Retirement (WISER) roundtable addressing strategies, choices and decisions for women’s retirement income, important new data was presented that highlights the challenges faced by women in preserving their 401(k) savings when changing jobs – particularly for women with balances less than $5,000.
Much has been written recently about the preponderance of lost and missing participants. This predicament, one of the many offshoots of the problem of too many small accounts, is an urgent one for sponsors to address given reports that the Department of Labor (DOL) is focusing on their ability to locate missing participants during plan audits.
The top priorities for these plan sponsors in 2018, outlined in December 2017 by Mercer, include:
Following World War II, America saw the rise of a “throwaway” society – consuming, squandering and discarding vast quantities of national resources. Gradually, an awakening occurred as we realized that conservation was a more-sustainable path. Recycling models emerged, and once fully-adopted, they became deeply-ingrained in our psyches and formed a pillar of corporate social responsibility.
America’s defined contribution system is unsustainable – urgently requiring an upgrade to effectively deliver on its intended goal – helping millions of Americans enjoy a timely and comfortable retirement.
In late 2017, retirement industry observers breathed a collective sigh of relief when “Rothification” of 401(k) plans, once considered as a part of new tax legislation, was abandoned. With Rothification in the rear-view mirror, policymakers have begun turning their attention to other, more-promising initiatives.
How are you hoping to improve yourself in 2018?
The most common New Year’s resolutions usually have to do with personal appearance, health, or behavior—losing weight, exercising more, dieting, quitting smoking, etc. Popular polls indicate that many of us are after a slimmer, fitter body for ourselves after each New Year’s Day.
Similarly, defined contribution plan sponsors are likely thinking about how they can make their plans more attractive and streamlined in 2018.
Much has been written in this column and elsewhere about the benefits that auto portability, and seamless plan-to-plan portability in general, can provide to millions of retirement-savers across America. As any entrepreneur can testify, it is challenging to initiate a major innovation, and then persevere through all the twists and turns along the road to widespread adoption. Fortunately for everyday Americans saving for retirement, there is already an established blueprint in place for launching a nationwide, private-sector retirement clearinghouse that will enable auto portability.
On November 7th, Retirement Clearinghouse (RCH) issued a press release announcing the results of the first-ever implementation of auto portability, as evaluated by Boston Research Technologies (BRT)’s Warren Cormier in his just-published white paper “Making the Right Choice the Easiest Choice: Eliminating Friction and Leaks in America’s Defined Contribution System.”