Participant Response Suggests Pent-Up Demand for Comprehensive Roll-In Solution for Small Accounts
CHARLOTTE, N.C.—November 7, 2017—Warren Cormier, Founder and CEO of Boston Research Technologies, today released a new report documenting the key findings from auto portability’s inaugural market launch with Retirement Clearinghouse. The full report, entitled “Making the Right Choice the Easiest Choice: Eliminating Friction and Leaks in America’s Defined Contribution System,” is available for download at: https://info.rch1.com/hubfs/brt_choice_white_paper_HR.pdf
Auto portability was launched in July 2017, and later that month Retirement Clearinghouse (RCH) executed the industry’s first fully automated, end-to-end transfers of retirement savings from an accountholder’s safe harbor IRA into their active plan accounts. The service—conducted for a large plan sponsor in the health services sector—is ongoing and consists of four core technological processes: an electronic-record location search to identify multiple accounts potentially belonging to the same individual; a proprietary “match” algorithm to confirm the located accounts belong to the same participant; receipt of the participant’s affirmative consent to consolidate accounts in their active retirement plan account; and an automated roll-in transaction. Mr. Cormier’s report documents the results and findings from the initial launch spanning the period from July through October 2017. During that time, over 400 participants consented to have their safe harbor IRA balance automatically rolled into their active 401(k) plan account.
“While Warren’s report is very encouraging, the results so far represent just the tip of the iceberg,” said Spencer Williams, Founder, President and CEO of Retirement Clearinghouse. “We can clearly see the potential to preserve trillions of future retirement savings dollars for tens of millions of hardworking Americans through the widespread adoption of auto portability.”
Boston Research Technologies compiled and analyzed data, using advanced statistical methods, for more than 3,000 participants that had both a safe harbor IRA and an active plan account with their current employer. Key findings included the following:
15% of participants with matched accounts responded to the roll-in offer, a rate measurably higher than direct mail solicitation and a strong indication of pent-up demand.
91% of the responding participants gave their consent to the transaction and had their savings consolidated in their active-employer plan.
9% of participants opted out of the program, with a majority of them choosing to cash out their accounts.
The elimination of friction makes the roll-in decision easy and cost-effective for even the smallest account balances. Of all the account balances that were consolidated through a roll-in, 56% were less than $1,000, demonstrating that when given the choice, participants prefer to retain these balances—and don’t want them automatically cashed out of plans.
Upon consolidation, workers’ median plan account balance increased by 46% and the combined future value of their preserved savings was more than $3 million at normal retirement age.
85% of participants with matched accounts did not respond to the roll-in offer, but their lack of response was likely the result of self-destructive behavior or lack of knowledge about where to start rather than a preference to cash out. The report found that 90% of accountholders with less-than-$5,000 stranded accounts opted to roll their assets into a safe harbor IRA—but of those accountholders, 86% had been in a safe harbor IRA for more than one year, and 44% were in a safe harbor IRA for more than three years.
“One important finding is that auto portability helps participants overcome the structural frictions embedded in the consolidation process, making the decision to roll in as easy as the decision to cash out,” said Mr. Cormier. “We can also observe that a mechanism is needed to surmount the remaining cognitive frictions, such as procrastination, hesitation, and indecision. The utilization of a negative consent mechanism would lead to the preservation of billions of dollars in retirement savings that are currently being cashed out by participants at alarmingly high rates.”
“Making the Right Choice the Easiest Choice” is Boston Research Technologies’ most recent contribution to a growing body of research that has conclusively linked portability and leakage. Prior research includes Mr. Cormier’s seminal 2013 report “Eliminating Friction and Leakage in America’s Defined Contribution System” and his 2015 study “Portability and The Mobile Workforce.”
Auto portability (https://www.rch1.com/auto-portability) is the routine, standardized, and automated movement of a retirement plan participant’s 401(k) savings from their former employer’s plan to an active account in their current employer’s plan. Auto portability was conceived and developed by RCH to meet the needs of participants with small account balances that lack access to the portability solutions afforded to larger accounts. The process is designed to work within the existing platforms and data flows of the nation’s qualified plan system, and can be facilitated at record-keepers and plan sponsors across the U.S. through RCH Auto Portability.
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