TRANSCRIPT

Tom Hawkins: Welcome to another edition of the RCH Consolidation Corner Channel, where we provide you with audio content that explores key issues in the preservation and consolidation of retirement savings. Today, we’ll be examining how Auto Portability – as delivered by the Portability Services Network – works to both preserve AND to aggregate small-balance retirement savings, helping participants pass over the important $10,000 hurdle. We hope you’ll find the audio enjoyable and informative.

NARRATOR: The retirement landscape is experiencing a significant transformation with the introduction of auto portability through the Portability Services Network. This innovation directly addresses two critical challenges in retirement savings: cashout leakage and account fragmentation. Let's explore how this system is reshaping retirement security for millions of Americans. Consider this striking statistic: nearly 15 million defined contribution plan participants change jobs annually, and almost one-third of them completely cash out their retirement savings. This results in a staggering $92.4 billion in annual cashout leakage. The situation is even more dire for those with balances under $7,000, where over 70 percent of participants cash out their savings. Auto portability is fundamentally changing this dynamic by making account consolidation the default option. This simple change has shown remarkable results, boosting preservation rates to 70 percent and reducing cashouts by 58 percent compared to the traditional approach. This is particularly significant because research shows that once participants reach a $10,000 balance threshold, they become three times more likely to preserve their savings during job transitions.

The long-term impact of auto portability is even more compelling. Research following small-balance job changers over a decade reveals that without auto portability, only 5 percent reached the crucial $10,000 threshold. However, with auto portability in place, 36 percent of participants achieved complete balance consolidation after just three job changes, crossing that important $10,000 mark. For a 25-year-old participant, this could translate to over $70,000 by retirement age. This systematic approach to balance consolidation benefits not just individual savers, but the entire defined contribution ecosystem, including plan sponsors, service providers, and advisors. It creates a more efficient system where retirement savings can grow through compound returns, and accounts become more attractive to financial advisors who typically view balances over $10,000 as serious retirement assets.

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