Auto Portability - Increasing Retirement Security for Americans
Auto portability is the routine, standardized and automated movement of an inactive participant’s retirement account from a former employer’s retirement plan to their active account in a new employer’s plan.
Auto Portability was conceived and developed by Retirement Clearinghouse to serve the needs of participants that are subject to the mandatory distribution provision of their employer-sponsored plan (separated participants with account balances less than $5,000) to curb the unprecedented levels of cash out leakage occurring as participants change jobs, and is designed to work within the existing infrastructure and data flows of the qualified employer plan system.
America’s workforce is more mobile than ever before, but its members’ need to keep their savings intact, and move them forward as they change jobs, is not being met. The Employee Benefit Research Institute (EBRI) estimates that the average 401(k) plan participant will have 9.9 jobs over their working career, which translates into an estimated 14.8 million workers with retirement accounts changing jobs each year. Of these, 5.3 million of these participants (36% of annual job changers) have less than $5,000 in their account at the time of their job-change, and are subject to a mandatory distribution from their former retirement plan into a Safe Harbor IRA. Over 54% of these small-balance accounts will cash out in year 1, and 75% by year 7.
Auto portability changes the dynamic for these participants by making the easiest decision (preserving retirement savings by automatically moving them forward within the defined contribution system) the best decision.
Auto portability has tremendous systemic benefits for America's defined contribution system:
- EBRI estimates that full adoption of auto portability would generate $2 trillion in retirement savings.
- Auto portability, when paired with other expanded access policy initiatives (ex. - open MEPs, universal defined contribution), generates a significant amount of incremental benefits, vs. expanded access initiatives alone.
- Since auto portability acts directly on the small account problem, it should result in greater adoption of automatic enrollment, particularly for sponsors with higher levels of employee turnover.
Learn more about auto portability by examining these sections on the RCH1.com website, including: