Vanguard’s How America Saves report for 2022 provided cause for optimism with some of its findings. For example, employee participation rates in Vanguard-managed defined contribution plans remain high, and have not declined year-over-year during the pandemic. The majority of participants in Vanguard plans also increased or maintained their contributions last year, and the average account balance for Vanguard participants increased by 10% year-over-year, to $141,542.

I’m convinced that Auto IRA programs, despite their potential size and strength, suffer from an obvious Achilles’ heel: a lack of retirement savings portability.  

Without addressing their portability problem, Auto IRA programs could expand, but may never reach their full potential, housing large numbers of churning, small-balance accounts. However, with adequate support for portability both into and out of these programs, they could dramatically increase the odds that they deliver on their promise of building incremental retirement wealth for millions of Americans.

An interesting and valuable finding lies buried within EBRI’s 2022 Retirement Confidence Survey (RCS), but you won’t find it referenced in the organization’s initial report, officially released to the public on Thursday, April 28^th.

In an excerpt of a report available to survey partners, the RCS found that a plurality of job-changing 401(k) plan participants favored automatic plan-to-plan portability over consolidating their savings to an IRA, or leaving their savings behind in their former employer’s plan. This result comes on the heels of EBRI’s 2021 survey, which found that nearly 9 in 10 participants believed that auto portability would be valuable to them.

Last year marked the 15^th anniversary of the Pension Protection Act of 2006. This legislation included well-intentioned provisions for helping Americans increase their retirement savings, including the capability for defined contribution plan sponsors to automatically enroll employees in their plans. Despite the good intentions behind auto enrollment, and all the positive outcomes that have resulted, its introduction also coincided with high workforce mobility and a lack of seamless plan-to-plan savings portability, which has led to a surge in small, stranded 401(k) savings accounts.

COVID-19 has altered so much in our nation, and our world, over the past two years. Many of us learned to stop and smell the roses during lockdowns, and count our blessings, especially health and family. For those who were fortunate enough to remain employed full-time during the pandemic and could work remotely, videoconferencing tools like Zoom and Microsoft Teams suddenly became indispensable for conferring with colleagues and customers.

Traditionally, the anniversary gift for couples celebrating their 15^th wedding anniversary is crystal. When the Pension Protection Act of 2006 was signed into law 15 years ago, a crystal ball would have been useful. Although this legislation was (commendably) crafted with the best of intentions, its unintended consequences for defined contribution plan participants and sponsors continue to reverberate.
 

Auto portability can’t wait.

There are four key reasons why the new plan feature that automatically moves small balance retirement savings forward as 401(k) participants change jobs can wait no longer.

A 10/28/21 hearing by the U.S. Senate’s Special Committee on Aging, titled A Financially Secure Future: Building a Stronger Retirement System for All Americans, was highly-focused on the problems of cashout leakage, as well as its most promising solution, auto portability.

Concurrent with the COVID-19 pandemic, our elected representatives have been grappling with the issue of wealth disparities between America’s white and minority workers. Commendably, there has been bipartisan support in Washington, DC for measures to assist those who are historically under-served or under-saved in our national system for accumulating and incubating retirement savings.
 

At first glance, some retirement savings public policies can seem like a sure thing, particularly when they’re based solely upon the benefits that would directly result. However, in the real world, these “first order” effects are inevitably followed by “second order” effects, which can sometimes be antithetical to the policy’s original intent.