Blog

Automatic rollovers of small, stranded 401(k) savings accounts are, on the surface, helpful for plan sponsors to keep their plans lean and healthy. However, “on the surface” is the key part of the previous sentence.

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.

Previously:

• In Part 1, I examined the dramatically improved participant outcomes that will result from a program of auto portability.
• In Part 2, I described how auto portability, by enhancing and extending automatic rollover programs, represents an enhanced standard of participant care.
• In Part 3, I presented evidence that the adoption of auto portability could lead to a reduction in plan expenses.
• In Part 4, I addressed how auto portability could enhance 401(k) participants’ financial wellness.

In part 5, my final installment of the series, I explain how auto portability can mitigate retirement-related cybersecurity risks.

• In Part 1, I examined the dramatically improved participant outcomes that will result from a program of auto portability.
• In Part 2, I described how auto portability, by enhancing and extending automatic rollover programs, represents an enhanced standard of participant care.
• In Part 3, I presented evidence that the adoption of auto portability could lead to a reduction in plan expenses. 

In Part 4, I address how auto portability could enhance 401(k) participants’ financial wellness.

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.

On April 16^th, as part of their Strategic Issues Webinar Series, the LIMRA Secure Retirement Institute delivered the webinar Regulatory and Legislative Trends Impacting the U.S. Retirement System.  The LIMRA webinar featured presenter Michael Kreps, Principal, Groom Law Group, and was moderated by Judy Zaiken, Corporate Vice President, LIMRA.