Hey, plan sponsors: Imagine for a moment that your active participants are Tom Cruise from Mission: Impossible (or Barbara Bain, Peter Graves and Martin Landau, for those of us who remember the classic TV series).

Have you ever received a letter with the notice “Time Sensitive Material! Open Immediately!” boldly splashed across the outside of the envelope, only to sigh with disappointment with what’s on the inside?  While the disappointment of false advertising so often seems to be the case with “junk mail,” the warning turns out to be true when we examine the behaviors of retirement plan participants who have recently changed jobs.

According to the recently released 2016 Willis Towers Watson U.S. Retirement Governance Survey, a major trend in retirement plan governance is the growing concern employers have for employees’ retirement benefit adequacy and financial well-being. To address this concern, sponsors indicated plans to increase monitoring of participant behaviors, using metrics such as plan participation and contribution rates, as well as carefully tracking the performance of their plans’ investment managers.

In the wake of the Fiduciary Rule, providers of all stripes are broadly reevaluating their strategies for the participant and asset retention that is essential to growing their retirement plan businesses. Over the past two decades, providers have primarily looked to capture IRA rollovers as a means to grow retirement assets. The Department of Labor’s new Fiduciary Rule creates challenges to that model. However, there is another, largely untapped, pool of assets within providers’ reach that can fuel growth—premature cash-outs. Auto portability, and portability solutions in general, represent a new and unique way to tap that potential source of growth.

In his 6/30/16 MarketWatch article, RCH President and CEO Spencer Williams suggests an inter-generational dialogue on the pitfalls to avoid when saving for retirement.

Cash out leakage – the premature withdrawal of retirement savings for non-retirement expenses – is a persistent problem in the retirement industry, and growing more pervasive as employee mobility increases.

When the Auto Portability Simulation (APS) model was recently unveiled at EBRI’s 78^th Policy Forum, a lot of attention was paid to the “marquee” numbers, and rightly so.  I’m referring here to the $154 billion reduction in cashout leakage, as well as the $115 billion increase in plan-to-plan roll-ins that occur under the adoption of Auto Portability. 

First, let’s review the definition of “leakage.” If we think of total 401(k) savings as a bucket of water, “leakage” refers to those retirement savings that, like water in a leaky bucket, are withdrawn from the U.S. retirement system every year. There are three holes in the bucket: cash-outs at the point of job change, hardship withdrawals, and loan defaults. According to the U.S. Government Accountability Office, one of these holes is much bigger than the other two combined—nearly 89% of all leakage is attributed to cash-outs that occur when a participant changes jobs. Hardship withdrawals and loan defaults together account for the remaining 11%.

 On May 12th, Retirement Clearinghouse President & CEOJ. Spencer Williams unveiled theAuto Portability Simulation(APS) at theEmployee Benefit Research Institute's 78th Policy Forum. The APS was developed by Retirement Clearinghouse in conjunction with Dr. Ricki Ingalls, Chair of Computer Information Systems at Texas State University, and Principal at Diamond Head Associates, Inc.

The Department of Labor’s much-anticipated Fiduciary Rule is ushering in many changes across the retirement services landscape, and the new rules governing the “what, how and why” for advice at the time of a participant’s job change will undoubtedly transform the rollover-to-IRA market. However, a closer reading of the Fiduciary Rule sends a clear, if unstated, signal to plan sponsors, financial advisors and record-keepers—absent a compelling reason to roll over to an IRA, keep participants invested in a qualified defined contribution plan throughout their working lives.