Auto Portability's Foundational Research
Auto portability is supported by a broad base of empirical research that clearly demonstrates the problems facing American workers (job-changing, systemic friction and 401k cashout leakage) as well as the solution: moving retirement savings forward when participants change jobs.
PLANSPONSOR reporter Lee Barney joins the chorus of media coverage of the EBRI Issue Brief examining 2 policy initiatives -- a nationwide expansion of an OregonSaves-like program, as well as the adoption of 401(k) safe harbor plans. While the EBRI analysis found that both initiatives delivered significant benefits in the form of reductions to the nation's retirement deficit, the addition of auto portability delivered even more-dramatic benefits to both by reducing the amount of cashout leakage experienced by job-changing participants.
Following the release of a 10/31 EBRI Issue Brief and its 11/4 coverage in 401(k) Specialist, NAPA Net's Ted Godbout reports on EBRI's findings that auto portability, when paired with 2 policy initiatives -- a nationwide OregonSaves program and adoption of 401(k) safe harbor plans -- dramatically improves their benefits, as measured by projected reductions in the nation's retirement savings shortfall (RSS).
401(k) Specialist Managing Editor Brian Anderson addresses the latest EBRI Issue Brief, which examined two policy initiatives -- the rollout of a hypothetical, nationwide OregonSaves-like auto IRA program, as well as the widespread adoption of 401(k) safe harbor plans. While EBRI found that both policy initiatives could have a substantial impact on the nation's retirement savings shortfall (RSS), combining them with auto portability turbo-charged their results. When combined with auto portability, a nation-wide OregonSaves initiative generated additional, incremental benefits of $303 billion, while adding a whopping $386 billion to the benefits of 401(k) safe harbor plans.
A 10/31/19 EBRI Issue Brief -- What if OregonSaves Went National: A Look at the Impact on Retirement Income Adequacy -- examines the impact of a nationwide roll-out of a hypothetical "national" OregonSaves plan, as well as the nationwide adoption of 401(k) safe harbor plans by employers not currently offering a DB or DC plan. Not surprisingly, EBRI finds that the increased access to workplace retirement savings plans generated by these programs produces substantial reductions in EBRI's all-important metric, the Retirement Savings Shortfall (RSS). However, when each program is further paired with auto portability, their benefits are dramatically increased -- from $459 billion to $759 billion for OregonSaves, and from $645 billion to $1.0 trillion for 401(k) safe harbor plans.
The Savings Preservation Working Group (SPWG), a DC-based coalition seeking to promote best practice retirement policies, announced the release of its first Issue Brief. Entitled "Cashing Out: The Systemic Impact of Withdrawing Savings Before Retirement" -- the report examines a range of recent research and data to quantify the vast scope of leakage from the defined contribution retirement system, and "represents the most complete review of retirement leakage data to date." Critically, the SPWG analysis determines that cashout leakage amounts to between $60 billion and $105 billion annually, impacting 4.5 to 6.4 million participants. The group's website is located at PreservingSavings.org.
On 10/11/19, NAPA Net released results of a reader survey addressing the problem of cashout leakage and yielding valuable perspectives on retirement savings portability. Regarding plan-to-plan portability, a theme “echoed repeatedly” was the “complex, manual process that requires significant form completion and coordination.” The poll further found that 82% of respondents had plan sponsor clients who would be interested in a program that automatically consolidated balances. Specifically referencing auto portability, 81% of respondents indicated that they would introduce such a program to a plan, with 75% opining that such a program would make it easier for participants to manage their retirement savings.
ThinkAdvisor's Michael S. Fischer examines the latest Employee Benefit Research Institute (EBRI) research on auto portability, and finds a lot to like. First addressing the magnitude of the 401(k) cashout leakage problem, Fischer notes EBRI's finding that $92.4 billion leaked in 2015, and that each year, 4 in 10 plan participants who leave their jobs will cash out 15% of plan assets. Fischer goes on to highlight auto portability's effectiveness in plugging cashout leakage, accounting for $1.5 trillion in benefits as a standalone policy initiative. Fischer further cites auto portability's benefits to specific demographic segments, and concludes by noting its incremental, beneficial effects when combined with other legislative initiatives that expand access to workplace retirement plans.
In her 8/23/19 article, carried in both PLANSPONSOR and PlanAdviser, reporter Rebecca Moore links the most-recent regulatory actions from the DOL on the RCH Auto Portability program with the 8/15/19 EBRI Issue Brief, which projects the overall, 40-year present value of auto portability at nearly $2 trillion. Moore addresses the key findings from the latest EBRI research, which include new projections of 401(k) cashout leakage ($92.4 billion in 2015), projections of auto portability as a standalone policy initiative, auto portability paired with other legislative proposals, and finally, the beneficial impact of auto portability on specific demographic segments.