TRANSCRIPT:

Tom Hawkins: Hi, and 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 a very interesting issue – the migratory patterns of defined contribution system job-changers. We hope you’ll find the audio enjoyable and informative.

NARRATOR: The American workforce is more mobile than ever. According to the Employee Benefit Research Institute (EBRI), the average American changes jobs nearly 10 times during a 45-year career, with approximately 14.8 million defined contribution plan participants switching employers annually. What's also noteworthy is where these job-changers are going. Additional EBRI data has revealed that nearly 83% of participants move to employers with plans equal to or larger than their previous employer's plan. In fact, almost 63% of job-changing participants transition from one large plan to another large plan, with "large" defined as having more than 1,000 participants.

Only about 17% of job-changers move to smaller plans, with less than 2% leaving large plans for small plans with fewer than 100 participants. This pattern challenges concerns about plan-to-plan portability. According to the 401(k) Averages Book, plan expenses decrease as participation increases. Plans with just 10 participants have an average expense ratio of 1.34%, while plans with 2,000 participants average 0.70%. This means most job-changers are actually moving to less expensive plans, not more expensive ones.

Some industry professionals have expressed concern that simplifying plan-to-plan transfers, including auto portability, might harm participants by moving their savings into more expensive plans. However, EBRI's analysis shows this concern is unfounded.

Additionally, terminated-participant accounts require ongoing servicing despite the accountholder no longer working for the plan sponsor. Too many small, stranded accounts can burden a plan's infrastructure and increase expenses for everyone. Auto portability—the automated transfer of 401(k) savings from a former employer's plan to an active account in a current employer's plan—has been operational for a little over a year within the Portability Services Network, an industry-led consortium of large defined contribution recordkeepers. This technology helps participants consolidate their retirement savings at the point of job change, enabling plan sponsors to increase average account balances.

Research by Deloitte Consulting for the Investment Company Institute found a correlation between plan fees and average account balances, with higher average balances associated with lower fees. This means account consolidation through auto portability benefits both former and new employers by helping reduce plan fees. In essence, roll-in transactions and auto portability create a win-win situation that benefits all parties involved.

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