Consolidation Corner

The Best Blueprint for Improving Retirement Security

Posted by Spencer Williams on Dec 11, 2017 1:02:48 PM


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.


The blueprint comes from the successful execution of auto enrollment during the previous decade. Prominent behavioral economist Richard Thaler, who would go on to be awarded the 2017 Nobel Prize for Economic Science, conducted the initial research which demonstrated that a default 401(k) program which required plan participants to opt out would drive better retirement-saving results than one mandating participants to opt in—for the simple reason that opt-out plans override the behavioral tendency to procrastinate.

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Topics: EBN, Auto Portability, 401(k) Consolidation, Retirement Plan Portability, Retirement Savings Portability

The Results Are In: Auto Portability is a Winner!

Posted by Michael Wilder on Nov 15, 2017 8:09:58 AM

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.”

Those of us who have worked diligently to bring auto portability to fruition have intuitively known it’s value in preserving small-balance retirement savings. Still, it was highly gratifying to have this view confirmed by the analysis presented in BRT’s white paper.

Auto Portability’s First Implementation

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Topics: Auto Portability, Safe Harbor IRA, Automatic Rollovers, Boston Research Technologies, Automatic Roll-In, Locate & Match

How to Contain the Damage from the Small-Account Explosion

Posted by Spencer Williams on Nov 1, 2017 12:10:48 PM


Much has been written about the proliferation of small accounts in our nation’s retirement system, and the problems that this explosion has created. A primary solution to the small-account quandary that I have frequently advocated in this column is auto portability.


However, while auto portability can create conditions which make it easier to transfer 401(k) savings from an account in a participant’s former-employer plan to an account in the participant’s current-employer plan, the process isn’t magic. Small accounts can’t move themselves. Auto portability is a good remedy, but it also requires a nationwide infrastructure for its full potential to be realized. A retirement industry clearinghouse would unleash auto portability’s full potential, and hopefully spawn other portability and consolidation solutions that would improve the “connectedness” of our country’s defined contribution plan system.

Small Accounts Continue to Plague Plans

The need for a complementary infrastructure is what binds auto portability and auto enrollment. While auto enrollment has clearly fulfilled its goal to bring a greater number of young and lower-income workers into the 401(k) plan system, the result doesn’t fully match what auto enrollment’s proponents had hoped. Without seamless plan-to-plan portability, and/or counseling on the benefits of conducting a roll-in at the time of a job change, most participants who are automatically enrolled in 401(k) plans will leave their accounts behind when they switch employers. Or worse, if they have less than $5,000 in their account, they will likely cash out or be automatically rolled into a safe harbor IRA.

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Topics: EBN, Auto Portability, 401(k) Consolidation, Retirement Plan Portability, Retirement Savings Portability

In Search Of: Guidance for Locating Missing Participants

Posted by Thomas Hawkins on Oct 25, 2017 2:33:48 PM

Two weeks ago, I authored an article applauding the American Benefits Council for their October 2nd, 2017 letter to the Department of Labor (DOL), which clearly identified the root causes of missing participants: a highly-mobile workforce and a lack of retirement savings portability. Extending the Council’s insight, I maintained that what’s really “missing” in our defined contribution system are initiatives that move retirement savings forward when participants change jobs, such as auto portability. When implemented, these initiatives could serve to dramatically decrease the overall incidence of missing participants.


Meanwhile, as a practical matter, fiduciaries of ongoing plans must still confront the problem of locating missing participants, and must do so with incomplete guidance. If audited, they’ll potentially face “ad hoc” enforcement positions by the DOL, which the Council asserts have been inconsistent and, in many cases, unreasonable.


This article focuses on the Council’s specific recommendations to the DOL as set forth in their letter. The Council’s recommendations, if adopted, could establish a more complete, consistent and reasonable framework for plans to address the missing participant problem, going forward.


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Topics: Auto Portability, Automatic Rollovers, 401(k) Consolidation, In-Plan Consolidation, America's Mobile Workforce, Auto Enrollment, Retirement Plan Portability, Automatic Rollover, Missing Participant IRA

Bringing Clarity to the Murky Problem of Missing Participants

Posted by Thomas Hawkins on Oct 13, 2017 4:02:45 PM


On October 2
nd, 2017, the American Benefits Council delivered a letter to the Department of Labor (DoL), urging the DoL to act on the problem of unresponsive or missing participants, an issue that has proven to be a significant point-of-pain for plan sponsors.


The central focus of the Council’s letter is the need for comprehensive and consistent guidance for plan sponsors in locating missing participants, a critical process that’s necessary to satisfy the DoL’s goal of ensuring that all participants receive their retirement benefits. 


In seeking clarity and consistency, the Council seems to have hit their mark, laying out a series of recommendations for an adaptive framework, based on the lifecycle of terminated, vested employees that includes the periods before, just prior to, and following distribution events.  


If adopted, the recommendations would supply desperately needed direction to fiduciaries of ongoing retirement plans, as well as providing a predictable framework for the DoL’s enforcement actions.


What’s Missing: A Strategic Solution for Missing Participants


As importantly, a careful read of the letter indicates the Council also grasps the larger dynamics of the missing participant problem, correctly identifying its underlying root causes. 

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Topics: Auto Portability, Automatic Rollovers, 401(k) Consolidation, In-Plan Consolidation, Cash Outs, Leakage, America's Mobile Workforce, Auto Enrollment, Retirement Plan Portability, Automatic Rollover, PSCA, Stale Dated Checks, 401k leakage, EBRI

‘May Day, May Day’: Locate your plan’s lost & missing participants before it’s too late

Posted by Spencer Williams on Oct 5, 2017 1:47:11 PM


The recent hacking of Equifax, which potentially compromised the security of sensitive information for 143 million Americans, doesn’t just reinforce the importance of cybersecurity. This cyberattack also makes a compelling case for the widespread adoption of auto portability.

Yes, you read the above correctly. Participants who roll their 401(k) savings into an active account in their new-employer plans when they change jobs are making a sound financial decision as well as a sound security decision. Completing a roll-in removes a participant’s stranded 401(k) account, and the sensitive information attached to it, from the online systems of the former employer and its record-keeper. The fewer systems where a participant has an active account, the less likely that participant’s sensitive data will be compromised in a cyberattack.

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Topics: EBN, Auto Portability, 401(k) Consolidation, Retirement Plan Portability, Retirement Savings Portability

Why Consolidation Should Top the List of Initiatives for Plan Sponsors in 2018

Posted by Neal Ringquist on Oct 2, 2017 12:31:47 PM

Today, it’s commonly-accepted practice for retirement plan sponsors to focus on three major initiatives to promote retirement adequacy: participation, saving and diversification.


While these three initiatives are proven, an emerging best practice is for plan sponsors to expand this list, incorporating consolidation, where plan participants are encouraged to consolidate balances from former employers’ plans, using their current-employer’s plan to manage their retirement savings.


Why Consolidation?


The American worker is highly-mobile, changing jobs over seven times in a career, and relocating once every 7 years. At the same time, participation in plans has increased substantially, primarily due to auto enrollment.  


These facts, combined with “do-it-yourself” portability, have resulted in an explosion of stranded, small-balance retirement savings accounts – or worse – unnecessary cash outs. Past leakage/cash out studies by the GAO, Aon Hewitt and Fidelity have all shown a clear correlation between account balance and cash out rates:  the higher the retirement account balance, the lower the cash out rate.  


Consolidation fundamentally changes the small account dynamic, delivering real benefits to plan sponsors and their participants.

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Topics: Auto Portability, Cash Outs, America's Mobile Workforce, 401k leakage

The Explosion of Small 401(k) Accounts

Posted by Thomas Hawkins on Sep 18, 2017 4:28:54 PM


It’s generally accepted that the small-balance accounts of terminated 401(k) plan participants have been a problem for plan sponsors, resulting in increased plan costs, fiduciary risk and other ancillary problems, such as missing participants and uncashed distribution checks.

Now, based on new information from EBRI and other sources, we’re learning that small accounts are a large and growing problem for active participants as well.

If no action is taken to make retirement savings more portable, an increasingly mobile workforce will ensure that this collective “explosion” in small accounts will exacerbate headaches for plan sponsors. For participants with small accounts, research indicates that bad outcomes will only worsen as they leave savings behind or cash out entirely.

Looking Back: The Impact of Public Policy on Small Accounts

The problem of small accounts -- for both terminated and active participants – didn’t happen overnight, and has been influenced over many years by public policy, resulting in a decidedly mixed bag of outcomes. 

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Topics: Auto Portability, Automatic Rollovers, 401(k) Consolidation, In-Plan Consolidation, Cash Outs, Leakage, America's Mobile Workforce, Auto Enrollment, Retirement Plan Portability, Automatic Rollover, PSCA, Stale Dated Checks, 401k leakage, EBRI

Don’t Wait Until It’s Too Late: Prepare Now for Year-End 401(k) Plan Terminations

Posted by Thomas Hawkins on Sep 6, 2017 9:45:08 AM

As we enter the 4th quarter of 2017, many plan sponsors (as well as their advisors) will face the prospect of terminating a 401(k) plan.  For most, this will be the first -- and only -- time that they’ll undertake this important initiative, typically without the benefit of prior experience.

Unfortunately, many sponsors in this position will realize too late that time is not on their side, and will be scrambling to perform all the steps necessary to effectively terminate their plans.


When conducted properly, a 401(k) plan termination can take up to 4 months, from start-to-finish, and will require significant planning, flawless execution and strict attention to detail.  On the other hand, a poorly-executed plan termination could result in your plan not being properly terminated, which could result in delay, additional expenses -- and even worse -- the scrutiny of a DOL or IRS audit.

To educate sponsors in understanding the basics of terminating 401(k) plans, Retirement Clearinghouse has prepared a three-part video series.

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Topics: Auto Portability, Automatic Rollover

The Exit Bonus Employers Never Intended to Pay

Posted by Spencer Williams on Aug 30, 2017 4:52:05 PM


Without seamless plan-to-plan portability in place to preserve retirement savings when a participant changes jobs, many employers are unwittingly paying “exit bonuses” to terminated employees that they may never have intended to pay.


How the ‘Exit Bonus’ Works

Employer-matching contributions refer to a matching dollar amount contributed by an employer to the retirement savings of an employee who also makes a similar contribution, usually to a 401(k) plan. Typically, these matching contributions are viewed by employees as a tangible, high-value benefit, and by employers as a means to attract and retain the best talent, and improve plan participation and deferral percentage metrics.

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Topics: EBN, Auto Portability, 401(k) Consolidation, Retirement Plan Portability, Retirement Savings Portability

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