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Consolidation Corner Blog
Consolidation Corner is the Retirement Clearinghouse (RCH) blog, and features the latest articles and bylines from our executives, addressing important retirement savings portability topics.
401(k) plan consultants have been forceful advocates for the adoption of best practices at leading retirement plan sponsors. However, when it comes to automatic rollover programs, plan consultants sometimes miss the mark, at least in terms of participant outcomes. RCH's Tom Hawkins, writing in the Consolidation Corner blog, makes the case that 401(k) plan consultants should extend their analysis to emphasize those automatic rollover program components that help participants improve their retirement outcomes by avoiding cashouts, moving their retirement savings forward, and keeping their stay in safe harbor IRAs as brief as possible.
In observance of National 401(k) Day on Friday, September 9th, RCH's Tom Hawkins takes the opportunity to reflect on the long-running, highly successful public-private collaboration that has fostered the rapid ascendance of America’s 401(k) system. Hawkins writes that "this partnership will continue to drive innovations that will expand and improve the 401(k) system for millions of Americans – not only helping them to save more but preserving more of their savings for retirement."
Every Dollar Saved for Retirement Matters -- So Save More By Avoiding Cash-Outs & Consolidating 401(k) Accounts
RCH Founder, President & CEO Spencer Williams examines the implications of a study from Boston College's Center for Retirement Research, finding that the youngest Baby Boomers, with less access to defined benefit (DB) plans than their predecessors, are drawing down their 401(k)-based retirement savings at much faster rates, with many poised to run out of retirement savings by age 85. These findings underscore the need to preserve more 401(k) savings for younger generations, and according to Williams, the best way to do that is "to consolidate 401(k) savings accounts.....and to avoid making any premature cash-outs." Sponsors, states Williams, "can....help participants save more for retirement, so they don’t outlive their savings, by adopting auto portability.
Three Ways 401(k) Plan Sponsors Can Boost Participants’ Awareness on National Financial Awareness Day
Writing in the RCH Consolidation Corner blog, Tom Hawkins draws attention to National Financial Awareness Day, which falls on August 14th. In his piece, Hawkins offers plan sponsors 3 steps they can take to increase financial awareness. Plan sponsors who follow these steps, asserts Hawkins, "won’t simply produce more awareness in the minds of their participants, they’ll generate quantifiable results, coming in the form of decreased cashouts, higher levels of consolidation and average plan balances, as well as a lower incidence of missing participants."
Writing in the Consolidation Corner blog, RCH's Tom Hawkins examines the topic of missing participants, which he states: "is a problem that’s ill-defined and poorly understood, and where fundamental misunderstandings exist, inadequate solutions – paired with the prospect of unwanted regulatory attention or audits – can follow." Hawkins asserts that "taking proactive steps to conduct searches, and turning on plan features that promote retirement savings portability are the key steps required to getting off the missing participant treadmill."
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."
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.
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.