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Auto Portability blog posts
Newly Proposed Legislation Can Help Resolve America’s Retirement-Savings Gaps
Writing in the RCH Consolidation Corner blog, RCH founder, president & CEO Spencer Williams delves into recently-proposed legislation in the U.S. Senate, making the case that its auto portability-related provisions will make a real difference in the retirement security of millions of hardworking Americans. Citing Vanguard's recently-released How America Saves report, Williams notes that the highly-respected annual report "underscored that premature cash-outs of small 401(k) balances continue to threaten retirement readiness for plan participants, especially those who are younger and have less savings." Williams quotes the Vanguard research as concluding that "[a]uto portability services and revisions to minimum balance rules can help decrease cash out rates." Williams goes on to praise the Senate's bipartisan approach to the bill, adding: "[i}f the legislation is signed into law, the retirement-savings gaps in our society can begin to be filled."
Five Reasons Why New 401(k) Auto Portability Legislation is So Important
Writing in the Consolidation Corner blog, Renee Wilder Guerin, RCH's EVP of Public Policy, offers readers five reasons why a newly proposed U.S. Senate bill addressing auto portability is so important. The Advancing Auto Portability Act of 2022 -- co-sponsored by Senators Tim Scott (R-S.C.) and Sherrod Brown (D-Ohio), would offer tax credits to plan sponsors who implement auto portability, and codify rules for an industrywide auto portability network. The bill is expected to be rolled into the Senate version of the bipartisan Securing a Strong Retirement Act of 2022, which passed the U.S. House of Representatives on March 29 of this year.
Re-Thinking the Automatic Rollover IRA
Selecting an automatic rollover IRA provider used to be easy. Most 401(k) plan sponsors simply accepted the solution offered through their recordkeeper or TPA. Others performed due diligence, using a limited set of criteria including basic fees, investment options and accountholder service. Few, however, considered the grim realities facing terminated participants forced out into safe harbor IRAs, including excessive cashouts, forgotten accounts, hidden fees, and barriers to exit. Now, it's incumbent upon plan sponsors to fundamentally “re-think” these programs, incorporating five new criteria to ensure that automatic rollover IRA programs are fiduciary-friendly, while dramatically improving participants’ retirement outcomes.
401(k) Portability in Four Movements
RCH's Tom Hawkins examines the experience of a very large (250,000+ participants) 401(k) plan sponsor that has been highly successful in delivering improved participant outcomes by incrementally adopting a full program of retirement savings portability. Looking at four distinct five-year periods that coincided with increasing levels of portability and improved participant outcomes, Hawkins writes that "there’s no finer example of those [improved] outcomes than the multi-year, real-world experience of this plan sponsor, where thousands of participants increased their prospects for a timely and comfortable retirement."
Addressing the Achilles’ Heel of Auto IRA Programs
Writing in the RCH Consolidation Corner blog, Tom Hawkins offers his view that state-based Auto IRA programs, despite their potential size and strength, suffer from an obvious Achilles’ heel: a lack of retirement savings portability. Hawkins writes: "Without addressing their portability problem, Auto IRA programs could expand, but may never reach their full potential, housing large numbers of churning, small-balance accounts. However, with adequate support for portability both into and out of these programs, they could dramatically increase the odds that they deliver on their promise of building incremental retirement wealth for millions of Americans."
Key Portability Finding Located in EBRI’s Retirement Confidence Survey
RCH's Tom Hawkins digs into EBRI's 2022 Retirement Confidence Survey (RCS) and finds an interesting and valuable finding not referenced in the organization’s initial report, officially released to the public on Thursday, April 28th. In an excerpt of a report available to survey partners, the RCS has found that a plurality of job-changing 401(k) plan participants favor automatic plan-to-plan portability over consolidating their savings to an IRA, or to leaving their savings behind in their former employer’s plan. This result comes on the heels of EBRI’s 2021 survey, which found that nearly 9 in 10 participants believed that auto portability would be valuable to them, and Hawkins believes "others -- including the Department of Labor – will find 401(k) participants’ strong preference for plan-to-plan portability compelling."
On Filling the Leaky 401(k) Bucket
Writing in the Consolidation Corner blog, RCH’s Tom Hawkins opines on pending legislation that seeks to expand access for under-served and under-saved demographic segments, but may fall short if it fails to incorporate measures that minimize cashout leakage. Noting that SECURE 2.0’s expanded access provisions seek to benefit women, minorities and lower-income workers – the same demographic segments that cash out their small balance savings at disproportionate rates – Hawkins suggests that legislators consider inclusion of measures that would “spur more rapid adoption” of auto portability “by codifying into law the guidance issued by the Department of Labor and by creating modest tax incentives to encourage more early adoption of the feature.”
The Next Area to Tackle for Preserving Retirement Savings: Uncashed Distribution Checks
Writing in the RCH Consolidation Corner blog, RCH President & CEO Spencer Williams examines the ongoing problem of uncashed distribution checks. Worker mobility, as well as the prevalence of automatic cashouts for balances under $1,000, conspire to create an administrative burden as well as a significant fiduciary risk for plan sponsors. Auto portability, writes Williams, can “mitigate this exposure, and help participants increase retirement savings, by significantly reducing the need for automatic cash-outs” while simultaneously minimizing cashouts, a situation that Williams describes as “a win-win.”
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