News

Cashout Leakage Alert: Highway Through the ‘Danger Zone’

Writing in 401k Specialist, RCH's Tom Hawkins notes that the issue of 401(k) cashout leakage is "once again in the news, with the publication of an alarming study by academics, as well as new data from Fidelity Investments." Hawkins goes on to cite "compelling real-world data that supports the efficacy of retirement savings portability in dramatically reducing unnecessary cashout leakage" -- representing "a much-needed highway through the ‘danger zone’ of unnecessary cashout leakage, increasing retirement security for millions of job-changing 401(k) participants."

'Something has to be done'

Moneywise.com's Bethan Moorcraft joins a growing list of journalists reacting to the cashout leakage study published by academics affiliated with the UBC Sauder School of Business. According to Moorcraft, the study (Cashing Out Retirement Savings at Job Separation) finds that "just over 2-in-5 (41.4%) of employees are choosing to cash out their defined contribution 401(k) plans early" -- which she characterizes as a "shocking mistake." Moorcraft goes in-depth into the study's findings, interviewing UBC Sauder Associate Professor and study co-author Yanwen Wang, who states: “something has to be done — not to control people’s 401(k)s, but to provide enough knowledge so they’re aware of the consequences of their actions.” Moorcraft's piece also links to earlier RCH content on the fundamentals of cashout leakage.

Also featured in Yahoo! Finance and Canada Today

Broadcast Retirement News: Set It and Actually Forget It

In Broadcast Retirement News' segment #1257, anchor Jeff Snyder interviews Laura Quinsby, Center for Retirement Research, Boston College. The segment focuses on recent developments that will allow terminated participants to better track and consolidate their retirement savings, including the new SECURE 2.0-mandated lost-and-found registry, as well as auto portability. Snyder mentions the formation of the auto portability "consortium" or the Portability Services Network (PSN) as a positive development, while Quinsby opines that one indicator of auto portability's success will be an eventual decline in the number of terminated, vested defined contribution accounts, brought about by account consolidation.

Increased Cashouts at Job Separation Highlight Need for Auto-Portability

PLANSPONSOR's Remy Samuels examined recent research on 401(k) cashout leakage, published in Marketing Science and the Harvard Business Journal, and turns to co-author John G. Lynch, Jr., who provides his support for both auto portability and the Portability Services Network. Samuels writes that Lynch "encourages more recordkeepers to join the Portability Services Network, which would enable employees with smaller balances to roll over 401(k), 401(a), 403(b) and 457 accounts to a new employer’s plans as they change jobs." Referencing plan sponsors, Lynch also pointedly adds: “if the employer really cares about their employees, they should care about them when they’re on the way out the door as well.”

401(k) Plan Changes Are Coming

Writing in WealthManagement.com, Fred Barstein predicts that 401(k) and 403(b) plans must "fundamentally transform into something few could have envisioned just 10 years ago, driven by three societal pressures." Barstein goes on to cite the Portability Services Network (PSN) and auto portability, writing: "firms like the Portability Services Network, the first cooperative industry data exchange, driven in part by SECURE 2.0, offer the real hope of helping people consolidate the plans they accumulate over their careers."

401(k) Real Talk Episode 55

Fred Barstein, in the 55th episode of his recurring 401(k) Real Talk series, addresses the most timely and important developments in the 401(k) industry. As his lead-off topic, Barstein notes the 4/4/23 announcement by TIAA that it is joining the Portability Services Network (PSN). Barstein states: "with 62.6 million workers now in the network, and with other providers expected to join, helping a mobile workforce find and consolidate DC accounts is no longer a pipe dream."

Also: Link to YouTube video cued to Barstein's comments at 00:36

Retirement: A new option for job changers

Writing in Kiplinger's Money Power, senior editor Sandra Block examines the plight of job-changing 401(k) participants, who either cash out or strand millions of retirement accounts, and identifies auto portability -- delivered via the Portability Services Network -- as a promising solution. Describing how auto portability will work, Block cites Steve Holman, a principal in Vanguard’s Institutional Investor Group, and Greg Long, head of public policy for Alight Solutions.

A (Really) Surprising Reason for High Retirement Plan Leakage

NAPA Net's John Sullivan delves into recent cashout leakage research that finds a correlation between more-generous employer matching contributions and higher incidences of leakage. Sullivan also examines auto portability, turning to RCH president & CEO Spencer Williams, who addresses the Portability Services Network (PSN), a newly-formed "independent entity that acts as a utility" to foster adoption of the new automatic feature. Williams provides updates on PSN's recordkeeper membership, and states: "[w]e expect to have the beginnings of reportable activity by the end of the year.”