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

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

‘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

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

Small Accounts: The Root of Many Problems

Posted by Spencer Williams on Aug 9, 2017 11:25:14 AM


If you’re like most homeowners during these dog days of summer, you’re not just basking in the sunshine or swimming in the pool with your family. You also have a fight on your hands—the war against the dandelions that invade and attempt to occupy your entire lawn every year at this time.

As every experienced gardener knows, you can’t get rid of dandelions by picking their stems. This tactic offers a mere temporary solution to the problem. People may not be able to see dandelions on your lawn for a while, but the roots of those weeds are still in the soil, so they’ll quickly grow back, and might return in greater numbers than before.

You have to attack the root of a problem if you want to win an entire war instead of just individual battles. And what’s true in the war against dandelions is also true for the war against the administrative headaches posed by small retirement accounts owned by terminated participants. These administrative hassles may seem trivial at first, but if left unchecked, can lead to serious problems for defined contribution plan sponsors, such as high expenses and inadvertent fiduciary liability.

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

Rising Healthcare Costs Necessitate Healthy Retirement-Saving Habits

Posted by Spencer Williams on Jul 5, 2017 2:34:46 PM


If you think of retirement savings as a key part of a healthy retirement, then anyone who has prematurely cashed out 401(k) savings during their working life has suffered a compound fracture that will require several stages of therapy to fully rehabilitate. But a cash-out isn’t the only impediment to a financially secure retirement for these hardworking Americans.


According to Bank of America Merrill Lynch’s 2017 Workplace Benefits Report, 79% of employees experienced an increase in healthcare costs last year, leading 63% of women and 62% of men to decrease their retirement-savings contributions.


With rising healthcare costs undermining many Americans’ financial wellness, eradicating cash-out leakage and preserving savings by eliminating friction within the U.S. retirement system—the root cause of cash-out leakage—are more important than ever for helping Americans save as much for retirement as possible.

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

The Rallying Cry for Improving Financial Wellness: ‘Eradicate Cash-Out Leakage In Our Time!’

Posted by Spencer Williams on May 22, 2017 1:45:57 PM


Half a century ago, the global medical community united to wipe out smallpox, an infectious disease that afflicted mankind for millennia. In 1966, the World Health Organization (WHO) established the Smallpox Eradication Programme, which sent Western doctors to vaccinate the populations of nations and communities around the globe where smallpox was still rampant. No place where smallpox cases had been reported, or where the local population was not vaccinated, was overlooked by WHO medical teams, no matter how remote the village or how dangerous the journey.


The rallying cry of doctors, medical researchers, healthcare professionals, and government officials across the world was, “Eradicate smallpox in our time!”


By 1980, after just 14 years of intense global collaboration, smallpox had been eradicated. The magnitude of this achievement cannot be overstated.

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Topics: EBN, Auto Portability, 401(k) Consolidation, Retirement Plan Portability, Retirement Savings Portability, National Retirement Savings Cash Out Clock, 401k leakage

Automatic Cash-Outs Undermine Efforts to Enhance Financial Wellness

Posted by Spencer Williams on Apr 26, 2017 12:49:48 PM


In the spirit of Financial Literacy Month, retirement plan sponsors are to be commended for their commitment to enhance financial wellness among participants. In fact, 76% of employers offer financial health programs for employees, according to the seventh annual survey on corporate health and well-being conducted by Fidelity Investments and the National Business Group on Health® in 2016.

Financial wellness programs are an important and valuable benefit because many working Americans have significant financial worries. According to the results of a Fidelity Workplace Investing survey conducted last year, 29% of Generation-Xers and 24% of Millennials are concerned about making ends meet all the time. Furthermore, 38% of Gen-Xers and 25% of Millennials spend $2,000 or more on debt every month.

However, by automatically cashing out terminated participants with less than $1,000, sponsors seriously undermine their own efforts and send a contradictory message that retirement savings are only worth preserving if the balance is above a certain amount. In wellness terms, prematurely cashing out is the equivalent of going out for two Big Macs, an apple pie and a large milkshake right after running three miles on the treadmill at the gym, and is clearly the worst decision a participant can make regarding their retirement savings. And it is a widespread problem. The Plan Sponsor Council of America’s 58th Annual Survey of Profit Sharing and 401(k) Plans reports that 88.7% of defined contribution plans automatically cash out stranded accounts with balances below $1,000.

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

Financial Wellness Requires Mending Fractured Retirement Savings

Posted by Spencer Williams on Apr 6, 2017 11:03:13 AM


If you’ve ever broken a bone—playing sports, engaging in outdoor activities, or even just from a slip and fall—it doesn’t take long before the pain signals that you need to go see a doctor, and the sooner the better. The friction encountered while moving a retirement savings account from an old-employer plan to a current-employer plan when changing jobs sends similar pain signals through most participants. With the Employee Benefit Research Institute (EBRI) indicating that the average participant will have 7.4 jobs in their adult working career, the risk of participants incurring a fracture in their retirement savings is very high.

Given the complex and time-consuming nature of DIY plan-to-plan portability, it’s no wonder so many Americans find cashing out or stranding their 401(k) accounts to be the easiest option when they change jobs. As reported in Boston Research Technologies’ 2015 Mobile Workforce research study, a majority of participants responded that it would take more than 10 hours of their personal time to complete a roll-in, and they valued that time at well over $500!!

With millions of Americans suffering from fractured retirement savings, plan sponsors should take the initiative—and fulfill their fiduciary duty—by providing restorative care to their participants and eliminating obstacles to seamless retirement savings portability.

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

Auto Portability Helps Everybody, and Hurts Nobody

Posted by Spencer Williams on Mar 2, 2017 8:24:27 AM


“So, whose ox are you goring with auto portability?”


This is what a senior, well-respected retirement policy official asked my team at a sit-down meeting in Washington, D.C. Over the course of her long career, she had heard innumerable proposals to correct the savings shortfall in the U.S. retirement system. Many of them had a downside for at least one constituency in the retirement services universe, and she assumed that auto portability had one too.

But after a bit of thought we answered, confidently and correctly, “No one’s ox.”

She couldn’t believe it, but auto portability—the routine, standardized and automated movement of a retirement plan participant’s 401(k) savings account from their former employer’s plan to an active account in their current employer’s plan—can help more Americans increase their retirement savings, and empower more sponsors to improve their plan performance metrics, without harming anyone.

And best of all, it can be implemented across the entire retirement system voluntarily, with little cost—and significant upside—to the private sector.

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

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