That alignment around auto portability, embodied in the newly launched Portability Services Network (PSN), was on full display in a 12/8/22 Groom Law Group webinar. The event featured representatives from retirement industry titans and founding PSN members Alight Solutions, Fidelity Investments and the Vanguard Group, joined by Retirement Clearinghouse (RCH).
Watch video replay of the webinar:
RCH Executive Vice President Neal Ringquist led off the presentation, observing that “the big public policy problem driving the need for auto portability is cashout leakage” and noting that “where the problem is particularly acute is in the very smallest balances, the balances under $5,000.” Ringquist continued: “those who are cashing out are those that can least afford it – the under-saved and under-served” including women, minorities, and lower income workers, and cited EBRI research valuing the preservation of small balance accounts at $1.5 trillion, with disproportionate benefits accruing to the under-saved demographics.
Ringquist also drew attention to a secondary problem – the proliferation of safe harbor IRAs – where account balances may be preserved but are sub-optimally invested. Citing EBRI data, Ringquist highlighted a growing “bubble” of small-balance IRAs invested in money market-like instruments, a large percentage likely consisting of stranded safe harbor IRAs.
Ringquist closed his discussion of auto portability by addressing its quantifiable benefits to both participants and to plan sponsors.
Sterling Ingui, Product Area Leader, Next Gen Retirement at Fidelity Investments, offered insight into the genesis of PSN, which she characterized as “an unprecedented partnership and cooperation in laying the groundwork for more cooperation in the industry to benefit American workers. ”Following discussions with RCH Board Chairman Bob Johnson and RCH President & CEO Spencer Williams, Ingui related that PSN’s founders concluded “there’s a common solution and view with Fidelity, Alight and Vanguard, that the best outcome for Americans is to transition from a commercial model and to put [auto portability] into an industry utility.”
Ingui further declared that “we have the responsibility to solve this problem and have the ability to help millions of Americans achieve better retirement outcomes,” adding: “we are inviting other recordkeepers to join us.”
Ingui proceeded to walk attendees through the essential elements of PSN’s structure, as well as PSN’s 7 guiding principles, all focused on a commitment to support and operate a solution in a way that benefits American workers.
Holman then illustrated the participant fee structure, which is capped at $30 per successful consolidation, and which declines as a balance falls below $600, where the fee will never exceed 5% of the balance. When an account balance falls below $50, a consolidation is processed at no charge to the participant. Holman further emphasized “the only revenue that’s being generated to support all of this is these relatively modest fees assessed to the participants – no costs to the plan sponsors and no costs to the recordkeepers.”
Long described the existing regulatory framework, promulgated via Department of Labor guidance, including DOL Advisory Opinion 2018-01A and Prohibited Transaction Exemption (PTE) 2019-02.
Turning to prospective regulation, Long referred to “the Advancing Auto Portability Act of 2022, which is inside of SECURE 2.0, and which we think is going to become law pretty soon. ”The proposed legislation is important, continued Long, because “it takes regulatory rules and puts them into law, so that gives us a great sense of permanence” while also incorporating “a $500 tax incentive for plan sponsors that sign up.”
“The message you want to take from this is there is support for auto portability across Washington, whether it’s the research think tanks, whether it’s the advocacy groups or whether it’s the regulators or Congress, there’s broad support for auto portability, which is one of the reasons why we are confident it will become the default process in the not-too-distant future.”