By Neal Ringquist
Clearly, Washington DC is now “getting it” when it comes to retirement plan portability.
In November 2015, Senator Patty Murray and other influential members of Congress delivered a letter to Department of Labor Secretary Perez urging action on Auto Portability. Now, we have strong comments from President Obama in his final State Of The Union address on the need for more portable retirement savings.
It seems that Washington now clearly understands the frictions associated with retirement savings under the current retirement system. They further realize that Auto Portability – a private sector solution – can plug leakage (cash outs and unnecessary fees), allowing retirement savings to move forward along with a mobile workforce, while promoting lifetime participation in retirement plans.
The Building Momentum for Retirement Plan Portability
The momentum towards portability has been steadily building. In 2009, the U.S. Government Accountability Office (GAO) published 401(k) Plans: Policy Changes Could Reduce the Long-term Effects of Leakage on Worker’s Retirement Savings which highlighted, perhaps for the first time, the devastating impact of cash out leakage on the retirement readiness of 401(k) plan participants. Subsequent research reports published by Aon Hewitt, Vanguard and Fidelity were all consistent with the findings in the GAO report.
Most recently, a Retirement Clearinghouse/Boston Research Technologies Mobile Workforce study completed in 2015 examined the distribution decisions of 401(k) plan participants, firmly establishing the linkage between frictions associated with retirement account portability and adverse participant behavior upon job change, such as cash outs and stranded accounts.
The Auto Portability Solution
In his address to the nation, the President spoke of a “new economy” where workers “change jobs more often” while highlighting the need for improved portability, adding that “for Americans short of retirement, basic benefits should be as mobile as everything else is today.”