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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.
Joint Committee on Taxation Releases Leakage Study
On 4/26/21, The Joint Committee on Taxation, a nonpartisan committee of the United States Congress, released the report "Estimating Leakage from Retirement Savings Accounts." Taking a novel approach, the report examines tax data to calculate a "leakage ratio" that represents the ratio of net distributions to net contributions for participants 50 or younger. The study clearly identified job-changing as the chief cause of leakage, finding that the leakage ratio is 26% in the "year of the event" but remaining high in years 2-5 that follow. The report further concludes that the use of "forced distributions and portability of plans likely affect leakage."
Why the Case for 401k Auto Portability Just Got Stronger
With the 4/22/21 release of EBRI's 31st annual Retirement Confidence Survey (RCS), the case for auto portability just became a whole lot stronger. Why? RCH's Tom Hawkins, writing in 401k Specialist, points readers to the RCS finding that nearly 9 in 10 participants believe that auto portability would be a valuable plan feature. Even more impressive than the overall response, the survey also found that specific demographic segments that benefit the most from auto portability want it even more -- including minorities, younger age groups and lower income segments. Hawkins' piece also includes a link to a new video, The Case for Auto Portability.
The Case for Auto Portability Gets Stronger
The case for auto portability, the new 401(k) plan default feature that automatically transfers small-balance retirement savings when participants change jobs, has always been strong. Now, with the April 22nd release of EBRI’s 31st Annual Retirement Confidence Survey (RCS), the case has grown even stronger. with nearly 9 in 10 plan participants expressing their preference for the auto portability feature.
Consolidating the Gains from a Program of Retirement Savings Portability
Following on to the 2013 study by Boston Research Group (now Boston Research Technologies), a new study released by Retirement Clearinghouse (RCH) revisits a mega plan sponsor’s ongoing experience with a program of 401(k) retirement savings portability, and finds that not only have the benefits of the original program persisted, they’ve grown, with plan participants continuing to realize significant, measurable benefits.
Exploring the Lost Opportunities of Small IRA Rollovers
PlanAdviser's Lee Barney reports on the 11/17/20 EBRI webinar (Big Challenges with Small IRAs), which shed light on the growing problem of small balance IRAs, largely fueled by safe harbor IRAs. Presenting EBRI's recent research, Craig Copeland characterized the problem as "very pervasive." Barney quotes RCH's President & CEO Spencer Williams, who cites job-changer and cashout statistics, and points to small balance account issues as the reason that RCH created auto portability, stating: “[t]his is a solution that attempts to take advantage of inertia to create better behaviors and outcomes.”
Alight Solutions Releases New Study on Small-Balance Cashouts
Alight Solutions, a leader in defined contribution plan services, released a new study that addresses the problem of small-balance 401(k) cashouts. The study, The impact of 401(k) cash-outs on retirement income, examines the very high prevalence of small-balance 401(k) cashouts, the low incidence of 401(k) roll-ins and provides illustrations that depict the importance of preserving these small balances for retirement. Finally, the study points to RCH Auto Portability as an important "emerging new tool" in the fight against cashouts, for which Alight is "pleased to be an early adopter."
SECURE Act Impact: 3% Reduction in Retirement Deficit?
401kSpecialist Magazine's Managing Editor Brian Anderson reports on EBRI's 2/21/20 Issue Brief, which examines key provisions of the SECURE Act. In his article, Anderson notes that the overall reduction in the nation's Retirement Savings Shortfall (RSS) directly attributed to the legislation is 3%. However, when EBRI factors in auto portability, Anderson writes that "the overall reduction in retirement savings shortfalls is 10.0%" -- a significant increase over baseline.
SECURE Act Will Reduce Retirement Deficits By $115 Billion, EBRI Says
Financial Advisor Magazine's Tracey Longo covers EBRI's 2/20/20 Issue Brief that projects the benefits of the SECURE Act legislation, noting that the SECURE Act, by itself, could cut the nation's Retirement Savings Shortfall (RSS) by 3%, or $115 billion. While this is good news, even better news is that the SECURE Act -- when paired with auto portability -- would generate a whopping 10%, or $383 billion reduction in the RSS, of which $268 billion is directly attributable to auto portability.