On May 13, 2021, the U.S. Senate’s Committee on Health, Education, Labor, and Pensions (HELP) held its first hearing on retirement security since 2013. With testimony from a blue-ribbon panel of witnesses, the hearing had a broad focus, but the topic of retirement savings leakage, and its most promising solution, auto portability, were prominently featured.
Leading off witness testimony was Lori Lucas, the President, and CEO of the Employee Benefit Research Institute (EBRI). Lucas’s testimony quickly targeted “reducing plan leakage” as a key policy initiative and identified auto portability as a solution that could dramatically lower cashout leakage levels.
Lucas pointed to EBRI research that has quantified auto portability’s projected benefits of $2 trillion when applied to all balances, $1.5 trillion when applied to balances less than $5,000, and finally, its ability to significantly boost the benefits of other policy initiatives, such as open multiple-employer plans (open MEPs).
Lucas also noted auto portability’s benefits in response to a follow-up question from Committee Chairman and Senator Patty Murray, D-Wash., who inquired about policies that could expand access to part-time employees.
Lucas referred to EBRI research that revealed a positive impact of legislation that expanded access via open multiple-employer plans (open MEPs) and automatic enrollment, but these programs—when further paired with auto portability—yielded dramatically increased benefits of up to 26% for younger age segments.
“It’s not just getting people into the plan that’s at issue here, but more holistically, keeping that money in the system because part-time employees are likely to have low balances, and those are the balances that are likely to be cashed out…when they change jobs,” Lucas said.
“Solutions that focus on providing money to individuals to save for retirement security in portable plans are much more important than solutions that provide other kinds of incentives such as tax deductions,” Deva Kyle, Counsel at Bredhoff & Kaiser, added.
Later, in response to a question from Senator Robert Casey, D-Penn, Kyle again noted the importance of portability “so that plans can follow people as they switch jobs, because, as we know, we’re no longer in the 1950s or 60s, where people get a job when they’re 20 years old and retire there. People switch jobs, and a lot of times, if their plans don’t go with them, they’re set back in providing retirement security.”
Finally, towards the end of the hearing, Senator Tommy Tuberville, R-Ala, illustrated the pervasive nature of cashout leakage by offering his personal experience with cashing out at age 35 to buy a new home, an example he inadvertently set for, and later regretted, his two millennial-aged sons.
Thomas (Tom) Johnson Jr. is Retirement Clearinghouse’s EVP, Public Policy & Business Development, working on public policy matters as well as the commercial development of Auto Portability. Johnson is also a member of the firm’s Executive Leadership Team.