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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.
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."
Why Missing Participants Are So Misunderstood
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."
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."