No, this article isn’t about the Presidential election. But this year’s election, which took place in the middle of a global pandemic, reminds us that some things are in our control, and some things aren’t.
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.
It’s no secret that interest rates have been at historically low levels for quite some time, but the recent announcement by Federal Reserve Chairman Jerome Powell indicates that rates will stay near zero for the foreseeable future. Chairman Powell stated in his address last month that the Fed would tolerate above-2% inflation instead of attempting to preemptively control inflation by raising interest rates.
It’s bad enough that more than 50 million Americans have filed claims for unemployment benefits since the start of the COVID-19 pandemic and lockdown. But in addition to the disruption, financial hardship, and uncertainty that unemployed Americans (and their families) are experiencing right now, this crisis also threatens their financial security during retirement.
The COVID-19 crisis has created a situation where tens of millions of American workers are in danger of seeing their retirement savings depleted. In addition to the awful death toll, the COVID-19 outbreak has led to extreme disruption in daily life, financial markets, and the economy—especially employment. As of May 28, more than 40 million Americans filed claims for unemployment benefits in the previous 10 weeks. This deadly combination of 1) levels of unemployment not seen since the Great Depression, 2) a significant market downturn, and 3) the ongoing plan-to-plan portability gap, has serious implications for these Americans’ retirement outcomes.
America is a fundamentally caring country, as reflected in the collective actions of its individuals, businesses and policymakers. In the midst of the COVID-19 crisis, no policy reflects this caring spirit more than the aptly-named CARES Act, which, among other things, temporarily allows retirement savers hard-hit by the COVID-19 crisis to tap their qualified retirement savings while avoiding the punitive, 10% early-withdrawal penalty.
Increasingly, 401(k) plans have become more-and-more “institutionalized” – reflected by an increased level of sophistication in investment options, coupled with a downward trend in fees.
Three recent developments indicate that the retirement industry is waking up to the need to address 401(k) cashout leakage, and importantly – from within the framework of corporate social responsibility.