News

New EBRI Research Shows Millennials Benefit from Auto Portability

Expanding on research comparing DB plans vs. 401(k) plans with auto enrollment, on 2/14/19 EBRI released an infographic revealing the beneficial effect of auto portability on Milliennials. When auto portability is added to 401(k) plans, Millennials -- both male and female, for all years of eligibility, and for all income quartiles -- experience significant improvements in their 401(k) plan performance, as measured by equivalent break-even DB plan accrual rates. The latest EBRI analysis adds to a considerable body of evidence that auto portability is a leading retirement savings public policy initiative.

Why Auto Portability is Good for Your Retirement

Writing in IRIS, Joseph Conroy, CFP of Synergy Financial Group, examines auto portability from the perspective of the participant. Comparing participant outcomes that occur under the current system vs. those under auto portability, Conroy concludes that auto portability's benefits to participants are compelling, stating that "auto portability would be a benefit for retirement savers, both in the prevention of leakage and in streamlining accounts."

PLANSPONSOR: Senate Testimony Supports Auto Portability

PLANSPONSOR's Rebecca Moore, covering testimony offered to the Senate Special Committee on Aging, reports that Gene L. Dodaro, Comptroller General of the United States and head of the Government Accountability Office (GAO) "touted automatic enrollment and auto portability as ways DC plan enrollment and contribution levels can be encouraged." The Committee's hearing, held 2/6/19, addressed the topic "Financial Security in Retirement: Innovations and Best Practices to Promote Savings" and also included testimony from John Scott (The Pew Charitable Trusts), Linda K. Stone (WISER) and Denis St. Peter (CES, Inc.).

DB vs DC Outcomes Determined by Generosity, Design

Examining the 2/7/19 EBRI Research Brief comparing DB vs. DC plans, PlanAdviser's John Manganaro cites the study as finding that DB break-even accrual rates required for equivalency to their 401(k) counterparts are "rarely less than 1.5% of final pay." Under a scenario where auto portability is combined with the 401(k) plans, the DB break-even accrual rates increase further to deliver equivalency, with auto portability's impact "greatest among the lowest income quartile."

EBRI Reassesses Whether DC or DB Plans Are Better for Participants

PLANSPONSOR's John Manganaro examines EBRI Research Brief #473, released 2/7/19, which compares the outcomes of participants in automatic enrollment 401(k) plans versus defined benefit (DB) plans. Manganaro quotes the study as finding that DB break-even accrual rates required for equivalency to their 401(k) counterparts are "rarely less than 1.5% of final pay." Under a scenario where auto portability is combined with 401(k) plans, the DB break-even accrual rates increase further to deliver equivalency, with auto portability's impact "greatest among the lowest income quartile."

RCH's Spencer Williams on Auto Portability's Benefits to Minorities

In his latest article in Employee Benefit News, RCH President & CEO Spencer Williams addresses the headwinds facing minorities in saving more for their retirement, including significantly higher rates of job turnover and cash-out leakage. Building on statements by RCH Chairman Robert L. Johnson at a December 2018 White House event, Williams makes the case that – for minority savers – auto portability could preserve up to $1.4 trillion in retirement savings, over a generation. Williams concludes that auto portability represents the “best, and easiest, way for sponsors and their service providers” to address the problem.

PLANSPONSOR: Groom's Saxon Welcomes DOL's Auto Portability Guidance

In the January 2019 edition of PLANSPONSOR magazine, Groom Law Group's Stephen Saxon welcomes the U.S. Department of Labor's (DOL) November 2018 guidance on the RCH auto portability program. The DOL, says Saxon, "clarifies important questions about the fiduciary implications for plan sponsors" and provides "much welcome comfort" to plan fiduciaries considering the program. Saxon concludes his analysis by stating that "auto-portability will have a positive, long-term impact on the U.S. retirement system by reducing leakage and enabling American workers to consolidate their small retirement balances on an efficient basis."

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401(k) Plan Enhancements Linked to Richer Retirements

In his 2/5/19 article in HR Today, SHRM's Stephen Miller examines how plan sponsors are focusing on automation and lowering plan fees. On the topic of lowering plan fees, Miller quotes RCH's Tom Hawkins, who advises that a "blanket policy of attempting to retain all former employees' accounts as a means of increasing assets and thereby reducing plan fees is problematic" -- particularly when it comes to small-balance accounts. These accounts, Hawkins explains, "will only marginally increase plan assets and could result in increased administrative costs and fiduciary risk associated with higher levels of missing participants" that plan sponsors may no longer be able to locate.