In July, an article noted that the adoption of auto portability was picking up steam with thousands of plan sponsors already signing up for the service, delivered by the Portability Service Network (PSN). As I write this around six weeks later, that figure continues to rise at a brisk pace.
As PSN operations have commenced, and as the automated plan-to-plan consolidation of small balances begins, a familiar industry adoption pattern is emerging—where innovators within the plan sponsor community lead the charge and are quickly followed by others.
For retirement plan advisors looking to nudge plan sponsors who are considering adopting auto portability, here are four compelling reasons why they should move now to embrace the new plan feature.
1. You Won’t Be the First
Service providers, legislators and regulators have all decisively weighed in on auto portability, and now, thousands of plan sponsors have already adopted.
Auto portability has already been embraced by PSN, an industry-led consortium of recordkeepers with a 63% market share of defined contribution participants, and with more member recordkeepers on the way. It is truly an unprecedented industry vote of confidence in auto portability.
Auto portability has also been codified into law by SECURE 2.0, and has been subject to significant regulatory scrutiny and rule-making that clearly delineate fiduciary roles and responsibilities, while establishing clear, participant-protective guardrails.
Still, when it comes to adoption of any new plan feature, many plan sponsors tend to be somewhat risk-averse, preferring not to be early adopters, and deciding instead to wait-and-see how things pan out. The good news for these plan sponsors is that service providers, legislators and regulators have all decisively weighed in on auto portability, and now, thousands of plan sponsors have already adopted.
It’s now safe to say that no plan sponsor will find themselves out on a limb when choosing to adopt auto portability.
2. You’ll be Acting in Your Plan’s Self-Interest
Sometimes, there’s no better way to convince would-be adopters than to examine how auto portability advances their own self-interests. Here, auto portability really delivers.
It is within the clear self-interest of plan sponsors to:
- Reduce the overall number of terminated small-balance accounts in their plan. These accounts drive up administrative costs and can increase the incidence of missing participants. Because auto portability relies upon the plan’s adoption of an automatic rollover provision, auto portability works with a plan’s force-out provisions. If the plan cashes out balances under $1,000, they can include those accounts in their auto portability program and mitigate uncashed check issues.
- Improve plan metrics and increase average balances. Auto portability also brings small balances into the plan when new participants’ balances at former employers are matched to their current employers’ plan. By increasing plan assets and average balances, plan sponsors may ultimately reduce their plan fees. This clearly differentiates auto portability, when compared to having just a plan force-out provision.
To see how much auto portability could benefit your plan, visit the Auto Portability Plan Calculator.
3. You’ll Increase Participants’ Prospects for a Secure & Timely Retirement
By sponsoring a defined contribution plan, employers increase the odds that their employees will enjoy a secure and timely retirement. By improving participant outcomes, auto portability further improves those odds, and supports a plan sponsor’s commitment to their past, present and future participants.
Auto portability achieves improved participant outcomes by:
- Significantly reducing cashout leakage, by over 50% vs. traditional automatic rollover IRA programs
- Delivering default, automatic portability to safe harbor IRA accountholders, greatly minimizing their stay in a safe harbor IRA
- Automatically moving those funds back into the defined contribution system, where their savings stand the best chance of enjoying long-term growth as those balances would typically be defaulted to a target date fund, as opposed to a money market fund required in a safe harbor IRA for force outs
- Delivering portability to traditionally under-served and under-saved demographic segments, including minorities, women, lower-income segments and younger workers
4. Your Participants Want Auto Portability
At least three surveys have revealed participants’ strong preferences for auto portability:
- In March 2018, a Boston Research Technologies study (The Mobile Workforce’s Missing Participant Problem) surveyed 1,000 consumers who had participated in at least one workplace retirement plan, and found that 60% of respondents preferred an automated process to update their address or to consolidate their accounts.
- In April 2021, EBRI’s 31st Annual Retirement Confidence Survey (RCS) found that nearly 9 of 10 respondents indicating that auto portability would be valuable. The RCS also found that minorities, younger age groups and lower-income segments valued the feature even more.
- In April 2022, EBRI’s 2022 Retirement Confidence Survey (RCS) revealed that a plurality of job-changing 401(k) plan participants favored automatic plan-to-plan portability over consolidating their savings to an IRA, or leaving their savings behind in their former employer’s plan.
Make the Move
Plan sponsors interested in adopting auto portability can start by talking to their recordkeeper. If that recordkeeper is a member of the Portability Services Network, they will be able to guide plan sponsors through the adoption process. If the recordkeeper is not yet a member of PSN, let them know you’re interested in adopting auto portability.
Either way, you’ll be taking an important step that’s squarely in the interests of your plan and your participants.
SEE ALSO:
• Solving the Portability Puzzle with Allianz Life’s Ben Thomason
• The Risky Business of Cashing Out Plan Balances Below $1,000
• The Truth About Old-School Automatic Rollovers