The Retirement Clearinghouse Story
Retirement Clearinghouse didn't happen overnight.
Born as RolloverSystems in 2001, our mission has always been to help plan sponsors and their in-transition employees stay invested in their retirement.
Along the way, we learned....from working closely with plan sponsors and with their service providers....to assisting hundreds of thousands of plan participants with consolidating their retirement savings.
America's Mobile Workforce
We learned that America's defined contribution system is great at encouraging participation and retirement savings, yet it doesn't deal well with the mobile worker. This is a problem, when the average American changes jobs 7.4 times, in a 40-year career, resulting in:
- $68 billion in cashouts at job change annually (i.e., retirement "drop outs")
- 38 million stranded 401(k) accounts and 25 million small-balance IRAs
- Flaws and inefficiencies that cost both sponsors and participants time & money
- Increased plan complexities = higher plan costs
- Multiple unnecessary retirement accounts = erosion of participant savings
Friction and Leakage
The problem can be summed up in two words: friction and leakage. An April 2013 case study, performed by the Boston Research Group, concluded that there’s too much “friction” in the DC system, combined with too little assistance at the point-of-separation, resulting in excessive cash outs and stranded accounts.
- When changing jobs, it’s challenging or impractical to consolidate DC balances into a new plan and/or into other tax deferred qualified accounts.
- At an emotional moment, facing friction – and with little assistance – job changers take the path-of-least-resistance: they cash out, or leave their accounts “stranded.”
- The vast majority of cash outs are discretionary, and most regret cashing out later.
- Plan sponsors feel a sense of concern over cash outs and want to be part of the solution.
- Automatic Rollovers (AROs) solve some problems for plan sponsors, but alone, the ARO does little to help the mobile worker.
What the DC system needed -- but wasn't delivering -- was 1) personal assistance at the time-of-separation....particulary for the small-balance job changer with less than $5000, and subject to plan ARO provisions, and 2) a means to consolidate small-balance retirement savings accounts WITHIN the DC plan system.
The Boston Research Group case study examined the RCH model, as implemented in a large healthcare services provider. The case study concluded that the RCH business model presented a sound & workable approach to meet the needs of the small-balance job changer.
Boston Research Group discovered what RCH had already learned -- that the RCH business model, incorporating industry best practices, could solve the dual problems of friction and leakage.
One Individual, One Account
WIth programs emphasizing a "one individual, one account" approach to workplace retirement saving, the BRG case study found that:
- Lost and missing participants were greatly reduced, through sophisticated search techniques
- Cashouts were reduced over 50%, vs. industry averages, through personal assistance
- Account consolidation was greatly increased, utilizing an innovative RCH best practice: the "roll-in" -- whereby new and existing employees were able to consolidate their retirement savings to their new plan
A Clearinghouse Model Works for Everyone
RCH best practices work for everyone: participants, plans and providers.
The RCH "clearinghouse model" solves the dilemma of system friction and leakage by:
- Facilitating “pass-through” movement of money without building or retaining assets.
- Acting as a trusted intermediary between participants, plan sponsors, record keepers and other parties
- Serving all participants regardless of account balance
- Providing personal guidance to help navigate complicated paperwork and reduce cashouts
- Improving retirement readiness by consolidating multiple accounts during employee transitions and simplifying account management
A Proud Member of the RLJ Companies
Retirement Clearinghouse, LLC is a proud member of the RLJ Companies, an innovative business network founded by Robert L. Johnson, that provides strategic investments in a diverse portfolio of companies.