Learn the essentials about Auto Portability
WHAT IS AUTO PORTABILITY? [Back to Top]
Auto Portability is the routine, standardized and automated movement of an inactive participant’s retirement account from a former employer’s retirement plan to their active account in a new employer’s plan.
Auto Portability was conceived and developed by Retirement Clearinghouse to serve the needs of participants that are subject to the mandatory distribution provision of their employer-sponsored plan (separated participants with account balances less than $5,000) to curb the unprecedented levels of cash out leakage occurring as participants change jobs, and is designed to work within the existing infrastructure and data flows of the qualified employer plan system.
Auto Portability could be readily adapted to larger account balances should public policy dictate a higher mandatory distribution limit to take advantage of the cash out reduction automatically moving accounts forward demonstrates.
WHY IS AUTO PORTABILITY NEEDED? [Back to Top]
America’s workforce is more mobile than ever before, but its members’ need to keep their savings intact, and move them forward as they change jobs, is not being met. The Employee Benefit Research Institute (EBRI) estimates that the average 401(k) plan participant will have 8.8 jobs over their working career, which translates into an estimated 14.8 million workers with retirement accounts changing jobs each year.
- 5.3 million of these participants (36% of annual job changers) have less than $5,000 in their account at the time of their job-change and, by statute, are subject to a mandatory distribution from their former retirement plan into a Safe Harbor IRA.
- An additional 2.5 million participants (17% of annual job changers) have less than $15,000 in their account at the time of their job change.
- The median account balance for all participants with less than $15,000 (52% of all job-changers) at the time of their job-change is $4,642.
These participants in particular are making decisions that create adverse consequences for their retirement savings.
- Taking No Action: Participants with less than $5,000 that don’t respond to a notice are forced out of their retirement plan and into a Safe Harbor IRA, where by statute they are invested in money market funds that yield little or no interest. Low money market returns combine with annual administrative fees to deplete these accounts over time. Participants with account balances between $5,000 and $15,000 are permitted to keep their inactive accounts in their former employer’s plan, yet industry reports indicate that these accounts remain at high risk of premature cash out.
- Participants with account balances of less than $5,000 are prematurely cashing out their savings at rates approaching 60% at the time of their job-change (“fast leakage”), but that’s not the whole story because accounts that are rolled over to Safe Harbor IRAs remain at risk. Of those whose savings are retained in a Safe Harbor IRA, research shows that an additional 29% cash out by the seventh anniversary of their job change (“slow leakage”).Taken together, Fast and Slow Leakage indicate that an estimated 89% of these job changers ultimately cash out their accounts, incurring taxes and penalties and badly damaging their prospects for a secure retirement.
- Participants with account balances between $5,000 and $15,000 are also prematurely cashing out their savings at rates approaching 40% at the time of their job-change.
- Combined leakage for all accounts less than $15,000 is estimated to be 47%.
- Lost/Missing Accounts: Over time, participants change residences but neglect to update their address of record or lose track of their old accounts, creating the potential that these savings will ultimately be depleted by fees or lost to them via escheatment to their state of residence. Research indicates that 3% to 5% of all retirement accounts are classified as lost/missing.
WHAT ARE THE BENEFITS OF AUTO PORTABILITY? [Back to Top]
Auto Portability remedies several systemic issues that currently plague tens of millions of Americans’ efforts to save for retirement:
- Reduce Leakage & Increase Savings: According to a 2009 U.S. Government Accountability Office report, 89% of all leakage occurs at the time a participant changes jobs. Auto Portability creates a new option that inhibits leakage by systematically consolidating savings in a new employer’s plan, thereby incubating savings when accounts are small and most at risk of being cashing out, and methodically increasing overall retirement savings. Leakage is particularly acute among younger and lower-income participants.
Auto Portability has the potential to help 20,000 small-balance participants per day retain their retirement savings, which will accumulate to more than $1.3 trillion over the next generation of savers.
- Reduce Duplicate Accounts & Reduce Cost: Auto Portability utilizes technology to systematically consolidate savings in a new employer’s plan, reducing unnecessary costs incurred from maintaining multiple accounts.
- Reduce Lost & Missing Retirement Accounts: Consolidating participants’ retirement savings in their current employer plans leads to fewer accounts classified as “lost/missing” simply because fewer accounts are stranded across the qualified plan universe.
- More Appropriate Long-Term Investment Allocation: Savings rolled into a participant’s active plan will be invested in the plan’s default investment option, an appropriate investment alternative that has the potential to produce compounded earnings of 5% to 7% per year over a long investment horizon, a significant multiple versus the 0.10% to 0.5% annual interest earned in the money markets funds utilized in Safe Harbor IRAs.
- Reducing Friction & Increasing Portability: Each of the above issues traces their roots to a common cause: systemic frictions that frustrate saver’s best intentions to retain and grow their retirement nest egg. These frictions are most evident at the time of a job change and can be remedied through the use of technology and standardizations.
- Boosts 401(k) Participation: By solving the small account problem, Auto Portability will increase usage of auto enrollment features, known to boost participation -- particularly in minority and women's demographic segments.
HOW DOES AUTO PORTABILITY WORK? [Back to Top]
Auto Portability incorporates four basic operating elements:
- Notices: Upon becoming subject to a mandatory distribution, legally-required information notices are provided to participants in the Auto Portability program.
- Electronic Records Locate & Match:
- Account information is extracted, formatted and passed to the clearinghouse.
- The clearinghouse collects, standardizes and re-distributes account information to all record-keepers that participate in the Auto Portability program.
- Participating record-keepers utilize the Locate technology to query their plan/participant records in order to identify potential matches of accounts.
- Upon attaining a successful Match, account information is further validated and a notice is sent requesting that the participant consent to the transaction.
- Consent: Participant consent to the roll-in transaction can be obtained utilizing a variety of methods including:
- Affirmative written consent obtained at the time of enrollment in their new-employer plan.
- Affirmative consent given by accessing a secure website or voice response system.
- Affirmative consent given by contacting a call center.
- Negative consent.
- Automatic Roll-In:
- The inactive account is closed and the balance is rolled into the participant’s new-employer plan.
- The balance is automatically invested according to the participant’s current investment elections, or if the participant has not made an election, into the retirement plan’s default investment option.
- The participant is notified when the account is moved and consolidated into the new-employer plan.
WHERE I CAN GET MORE INFORMATION ON AUTO PORTABILITY? [Back to Top]
NEW! [Back to Top]
06/09/17: Who Wins with 401k Auto Portability? by Neal Ringquist, 401kSpecialist
06/01/17: The Fundamentals of 401(k) Cashout Leakage by Tom Hawkins, in 401kTV (video)
05/31/17: The rallying cry for improving financial wellness by Spencer Williams, in Employee Benefit News
05/17/17: Tick-Tock: Introducing the Retirement Savings 'Cash Out Clock' by Tom Hawkins, 401kSpecialist
05/17/17: EBRI Policy Forum Delivers Latest Research on Auto Portability by Tom Johnson
05/08/17: Are Traditional 401(k) Plans Ready for Retirement? by Tim Kelly, ForexTV
05/03/17: Why Retirement Plan Auto Portability is Important to Every Plan Sponsor by Tim Kelly, ForexTV
Foundational Auto Portability Research: [Back to Top]
Policy Changes Could Reduce the Long-term Effects of Leakage on Workers’ Retirement Savings - August 2009, Government Accountability Office. GAO study identifying the magnitude of the 401(k) leakage problem and first highlighting that cashout leakage is the most important constituent of overall leakage from 401(k) plans.
2010 – 2014:
Initial Results of the 401(k) Projection Model – May 2012. EBRI research indicating that a 50% reduction in cashout leakage could result in an incremental $1.3 trillion in retirement savings, over 10 years. Refer to graph on page 3.
401(k) Plans in Living Color: The Ariel/Aon Hewitt Study – 2012. A study of 401(k) savings disparities across racial and ethnic groups, clearly indicating that minorities are disproportionately impacted by cashout leakage.
Eliminating Friction and Leaks in America’s Defined Contribution System – 2013, Boston Research Group. A study of best practices implemented at a mega plan sponsor, validating that a 50% reduction in cashout leakage could be achieved by implementing a program of retirement savings portability.
401(k) Plans: Greater Protections Needed for Forced Transfers and Inactive Accounts – 2014, Government Accountability Office. Report to Congress examined “forced transfers” and inactive accounts, concluding that greater protections are required. The report cited substantial, systemic problems with consolidation and cited a “clearinghouse” as a means of achieving a “money follows the participant” objective.
The Impact of Leakages on 401(k)/IRA Assets – 2015, Center for Retirement Research at Boston College. An analysis of the impact of leakages on retirement assets, indicating that overall retirement wealth is reduced by about 25 percent, based on 1.5 percent of total retirement assets leaking each year.
Actionable Insights on America’s Mobile Workforce – 2015, Boston Research Technologies. A comprehensive survey of 401(k) participants revealing the systemic frictions they face in moving their retirement savings following a job change, and establishing the positive behavioral influence that retirement savings portability would have upon participant outcomes.
Auto Portability Simulation – 2016, Retirement Clearinghouse, Dr. Rcki Ingalls, PhD. A discrete event simulation that integrated cashout studies, participant behavioral models and EBRI data, clearly demonstrating that a program of portability can preserve and incubate retirement savings for small-balance job-changers.
The Impact of Auto Portability on Increased Accumulations and Decreased Retirement Deficits: Evidence from EBRI’s Retirement Security Projection Model – March 2017 by Jack VanDerhei, ERBI Research Director. EBRI analysis estimating that a program of Auto Portability can contribute $2 trillion in incremental retirement savings, establishing Auto Portability as a leading public policy initiative.
Frequently-Asked Questions: [Back to Top]
05/19/16: RCH Makes Auto Portability Frequently-Asked Questions Available by Spencer Williams
Public Policy - DC Policymakers and Centers of Influence: [Back to Top]
04/11/17: A way to break the gridlock: Help Americans secure their retirement by Former Sen. Kent Conrad, Bipartisan Policy Center via The Hill
03/31/17: Presentation deck from the 3-30 event "Retirement Savings Portability & Public Policy: Unlocking the potential in portability" hosted by Financial Services Roundtable
Jan. 2017: Research promoting Auto-Portability by LIMRA
Nov. 2016: Recommendations to the Department of Labor by ERISA Advisory Council
06/08/16: Joint ERISA Advisory Council Testimony on Auto Portability by Employee Benefit Research Institute (EBRI)
June 2016: Securing our Financial Future by Bipartisan Policy Center
Sep. 2015: The Leading Edge: Auto Portability -- A Solution to Prevent Cash Out & Preserve 401(k) Assets by Women's Institute for a Secure Retirement (WISER)
11/19/15: Bicameral Letter Urging DOL Guidance by Senate HELP Committee
Press Releases: [Back to Top]
10/01/15: WISER Forum Focuses on Auto Portability
Senate HELP Committee:
07/19/16: Simio and RCH Jointly Announce the Application of Simio Simulation Software by Simio
Infographics: [Back to Top]
01/20/17: Auto Portability Simulation Infographic
01/20/17: How Auto Portability Works Infographic
Media Articles & Blog Posts: [Back to Top]
401(k) Specialist Magazine:
06/09/17: Who Wins with 401k Auto Portability? by Neal Ringquist
05/17/17: Tick-Tock: Introducing the Retirement Savings 'Cash Out Clock' by Tom Hawkins
04/24/17: Why Retirement Savings Need to be 'Recycled' by Tom Hawkins
04/06/17: How Much Would 401k Participants Save With Auto Portability? by John Sullivan
03/14/17: A Stealth Solution to America's 401k Savings Crisis? by Neal Ringquist
02/27/17: Big Changes Coming for Small Accounts by Tom Hawkins
02/17/17: Good Intentions, Bad Outcomes with Small 401ks by Neal Ringquist
01/24/17: How to Remove Friction from the 401k System by Tom Hawkins
12/27/16: How to Bridge the Minority-401k Participation Gap: Auto-portability might be the answer by Tom Hawkins
10/25/16: Is Adoption of 401k Auto-Enrollment Decreasing? by Tom Hawkins
09/22/16: A Hidden Gem in Recent 401(k) Report by Neal Ringquist
09/08/16: Does 401k ‘Auto Portability’ Really Work? by Spencer Williams
08/23/16: Why Small Balance 401k Distributions Are Falling Through the Cracks by Neal Ringquist
08/10/16: The Power of Auto Portability: A Case Study by Tom Hawkins
08/04/16: How to Curb 401k Cash-Out ‘Leakage’ by Neal Ringquist
08/01/16: 401k ‘Auto Portability’ Goes to Washington by John Sullivan
12/17/15: How to ‘Recycle’ a Participant’s Old 401(k) by John Sullivan
06/01/17: The Fundamentals of 401(k) Cashout Leakage by Tom Hawkins
04/06/17: Why is Retirement Plan Portability Important to Every Plan Sponsor? by Tim Kelly, 401kTV
12/12/16: Cashouts: Plug the Leak by ASPPA Net Staff
04/04/17: The African-American Retirement Crisis: How Auto Portability Can Help by Tom Hawkins
02/07/17: One small improvement for 401(k) plans, one giant leap for retirement readiness by Neal Ringquist
11/30/16: Preventing retirement plan leakage: An infrastructure project that saves trillions by Tom Hawkins
10/17/16: A different ‘save’ to consider during National Save for Retirement Week by Neal Ringquist and Tom Hawkins
08/12/16: EBRI forum examines causes of retirement plan leakage by Marlene Y. Satter
05/13/16: Orphaned accounts, and what the DOL may have to reconsider by Nick Thornton
01/14/16: 4 views on retirement savings portability by Nick Thornton
12/11/15: Addressing the critical problem of 401(k) cash-outs by Nick Thornton
10/20/15: What is retirement auto-portability? by BlackRock DCFocus
10/09/15: I Moved My Retirement Money and Lived to Tell About It by Ben Steverman
05/23/16: Pension Auto-Portability Seen as Key to Preventing Leakage by Sean Forbes
Consolidation Corner / RCH Blog:
06/01/17: The Fundamentals of 401(k) Cashout Leakage by Tom Hawkins
05/22/17: The Rallying Cry for Improving Financial Wellness: 'Eradicate Cash-Out Leakage in Our Time!' by Spencer Williams
05/17/17: EBRI Policy Forum Delivers Latest Research on Auto Portability (Video) by Tom Johnson
04/06/17: Financial Wellness Requires Mending Fractured Retirement Savings by Spencer Williams
03/30/17: The African-American Retirement Crisis: How Auto Portability Can Help by Tom Hawkins
03/23/17: March 30th Washington DC Forum to Showcase Retirement Plan Portability & Public Policy by Tom Johnson
03/14/17: The Stealth Solution to America's Retirement Savings Crisis by Neal Ringquist
03/02/17: Auto Portability Helps Everybody, and Hurts Nobody by Spencer Williams
02/27/17: Big Changes Coming for 401(k) Small Accounts by Tom Hawkins
02/16/17: Incubate Small Accounts, Don't Throw Them Away by Neal Ringquist
02/02/17: One small improvement for 401(k) plans, one giant leap for retirement readiness by Neal Ringquist
01/19/17: The ABCs of Auto Portability by Tom Hawkins (VIDEO)
01/18/17: LIMRA's Secure Retirement Institute Features Auto Portability Research by Tom Johnson
01/03/17: Retirement Clearinghouse’s Logo is Changing: Here’s Why by Spencer Williams
11/04/16: What Plan Sponsors Can Do to Plug 401(k) Leakage by Tom Hawkins
09/22/16: The One Solution Everyone in DC Agrees Upon: We Need Consolidation by Neal Ringquist
09/13/16: Consolidation: Make the Smart Decision the Easiest Decision by Neal Ringquist
07/28/16: First Half of 2016: A Look-Back at the Headlines Driving a New “Auto” for 401(k) Plans by Tom Hawkins
06/30/16: RCH and EBRI Present Consolidated Testimony on Auto Portability Before the ERISA Advisory Council by Tom Hawkins
06/21/16: Calls for Portability Solutions to Curb Cash Out Leakage Growing Louder by Neal Ringquist
04/28/16: Say What? The Arcane Lingo of Retirement Savings Portability by Tom Hawkins
04/22/16: For Earth Day: How “Recycling” Could Apply to Our Retirement System by Tom Hawkins
03/15/16: Why Recycling is Coming to the American Retirement Industry by Tom Hawkins
01/13/16: Washington Recognizes Need for Retirement Plan Portability Solutions by Neal Ringquist
01/04/16: Auto Enrollment: The Unintended Consequences, Part II by Tom Hawkins
12/15/15: As 401(k) Cash Out Leakage Grows, So Does Need for Auto Portability by Neal Ringquist
10/27/15: Force Outs: Recycle v. Landfill by Neal Ringquist
10/12/15: When Small Accounts Are a Big Problem: What Every Plan Sponsor Should Know by Tom Hawkins
08/11/15: Automatically Moving Mandatory Distributions Forward by Neal Ringquist
Employee Benefit Adviser:
05/31/17: The rallying cry for improving financial wellness by Spencer Williams
04/26/17: Automatic cash-outs undermine efforts to enhance financial wellness by Spencer Williams
04/12/17: Why mending fractured retirement savings is key to financial wellness by Spencer Williams
04/06/17: Advisers seek innovative ways to increase retirement savings by Cort Olsen
Employee Benefit News:
05/31/17: The rallying cry for improving financial wellness by Spencer Williams
04/26/17: Automatic cash-outs undermine efforts to enhance financial wellness by Spencer Williams, in Employee Benefit News
04/06/17: Why mending fractured retirement savings is key to financial wellness by Spencer Williams
03/10/17: Auto Portability Helps Everybody, and Hurts Nobody by Spencer Williams
01/01/17: How Auto Portability Can Improve Retirement Readiness for a Mobile Workforce by Spencer Williams
11/18/16: What is synthetic tenure, and why is it important? by Spencer Williams
10/18/16: Why our retirement system is broken by Spencer Williams
09/08/16: Why retirement portability should become employers’ next big focus by Spencer Williams
07/21/16: Embracing a new source of plan growth by Spencer Williams
06/09/16: Not all 401(k) plan withdrawals are the same by Spencer Williams
04/04/16: Account consolidation time-consuming, expensive for employees by Spencer Williams
02/08/16: Why retirement portability is desperately needed by Spencer Williams
12/03/15: The unintended consequence of 401(k) auto-enrollment by Spencer Williams
10/09/15: A blueprint for lifetime participation in 401(k) plans by Spencer Williams
07/22/15: Safe harbor IRAs aren’t always safe by Spencer Williams
06/24/15: How to make mandatory distributions more fiduciary friendly by Spencer Williams
05/22/15: How auto-enrollment can be enhanced with auto-portability by Spencer Williams
04/13/15: Reduce plan fees by increasing account balances by Spencer Williams
03/17/15: Why dump mandatory distributions in a landfill when you can recycle? by Spencer Williams
Employee Benefit Research Institute:
August 2016: EBRI Notes: Reducing Retirement Savings Leakage
ERISA Advisory Council / Department of Labor:
06/08/16: Auto Portability Research & Simulation: Automating Plan-to-Plan Transfers for Small Accounts by Tom Johnson (Retirement Clearinghouse) and Craig Copeland (EBRI)
05/13/16: How Millennials Are Sabotaging Their Retirement by Ashlea Ebeling
05/08/16: Are Traditional 401(k) Plans Ready for Retirement? by Tim Kelly
05/03/16: Why Retirement Plan Auto Portability is Important to Every Plan Sponsor by Tim Kelly
01/24/17: The Next Step for 401(k) Innovation: Auto-Portability by Frances Denmark
01/17/17: IRA Rollover Market Looks Due for a Slowdown by Frances Denmark (quotes Northern Trust's Sabrina Bailey)
LIMRA / Secure Retirement Institute:
04/27/17: Rely on the IRA Market for New Business? Then Support Auto-Portability by Spencer Williams, in the LIMRA Secure Retirement Review
11/29/16: DConversations – Automatic Portability: A New Approach to Addressing Retirement Plan “Leakage” by Deb Dupont
04/08/15: A clearinghouse for small 401(k) accounts by Alicia H. Munnell
04/04/17: You Can Take it With You by Nevin Adams
National Law Review:
07/26/16: Moving Toward a System of Portable Benefits in the Gig Economy by Michelle Capezza
Sep. 2016: The Path Forward: Defined Contribution Plans Can Achieve More by Northern Trust Corporation
02/15/17: Is Auto-Portability the Next Big 401(k) Trend? by Paychex Retirement Services
04/05/17: EBRI Calls for Auto Plan Portability by Editors, PLANADVISER
04/05/17: Auto Portability Could Boost Nation's Retirement Savings Wealth by $2T by Editors, PLANSPONSOR
01/25/17: ERISA Advisory Council Backs Auto-Portability Initiatives by Rebecca Moore
Dec. 2016: Guarding the Treasure: strategies for encouraging participants to let their plan accounts grow by Rebecca Moore
10/25/16: Addressing the Most Serious DC Plan Leakage Problem by Rebecca Moore
05/06/16: Rethinking Mandatory Cash-Outs by Rebecca Moore
04/10/15: Is Auto-Portability the Next Big Thing? by Sara Kelly
Retirement Income Journal:
04/06/17: Retirement Clearinghouse gathers allies for its 'auto-portability' solution by Editorial Staff
04/06/17: Anecdotal Evidence: Fresh News from the Emerald City by Kerry Pechter
06/22/16: Honorable Mention: “Auto-portability” gains bipartisan endorsement by Editorial Staff
05/19/16: No Retirement Account Left Behind by Kerry Pechter
09/25/14: Fixing the 401(k)s’ Leakage Problem by Kerry Pechter
San Antonio Express-News:
07/15/16: Employers should slow retirement savings leakage by David Hendricks
Society for Human Resource Management:
08/17/16: Might ‘Auto Portability’ Reduce 401(k) ‘Leakage’? by Stephen Miller, CEBS
Video: [Back to Top]
01/19/17: The ABCs of Auto Portability
05/17/17: EBRI Policy Forum Delivers Latest Research on Auto Portability (Video) video by EBRI
05/20/16: Auto Portability Simulation Model Unveiled at 78th EBRI Policy Forum video by EBRI
02/02/16: 401(k) reality check featuring Robert Johnson, RLJ Companies
Financial Services Roundtable:
LIMRA / Secure Retirement Institute:
2016: Defined Contribution Auto-Portability: A New Paradigm for Mandatory Distributions by LIMRA / Secure Retirement Institute at LIMRA’s 2016 Retirement Industry Conference
01/24/17: Auto Portability Simulation - By Spencer Williams by Spencer Williams