The fledgling Portability Services Network added another major recordkeeper this week with the news that Empower has joined the consortium in an effort to help accelerate the nationwide adoption of auto-portability with 401(k) accounts.
Empower, one of the largest 401(k) recordkeepers in the country, joins fellow recordkeepers Fidelity Investments, Vanguard and Alight Solutions—who established the industry-first consortium last October along with Retirement Clearinghouse.
“The creation of this consortium will ultimately be a great benefit to many workers and Empower is thrilled to join with RCH and our industry peers to advance this important initiative.”
Empower President and CEO Edmund F. Murphy III
The consortium currently represents approximately 43.8 million workers across more than 48,000 employer-sponsored retirement plans. Adding Empower will bring approximately 17 million more retirement plan participants in more than 70,000 plans.
“Advancing auto-portability adoption across the retirement system provides workers with the best chance to harness the power of all the assets they have earned through their workplace savings plans,” said Empower President and CEO Edmund F. Murphy III. “The creation of this consortium will ultimately be a great benefit to many workers and Empower is thrilled to join with RCH and our industry peers to advance this important initiative.”
Under the Portability Services Network, retirement plan participants with lower balances who change employers can have their workplace retirement savings automatically moved to their new retirement plans.
Automating the process of moving assets in 401(k), 401(a), 403(b), and 457 accounts from plan to plan when workers change jobs will help mitigate plan cash-out and potentially preserve trillions of dollars in savings in the U.S. retirement system.
“Empower is a welcome addition to the consortium of recordkeepers that includes Vanguard, Fidelity and Alight, and are working together to enable under-served and under-saved American workers pursue financial security in retirement—and close the gap in retirement savings that plagues our minority communities,” said Robert L. Johnson, Chairman of The RLJ Companies and Chairman of Portability Services Network and Retirement Clearinghouse.
According to Retirement Clearinghouse, the need for auto portability has been driven by the lack of seamless plan-to-plan savings portability amid a highly mobile workforce. Approximately $92 billion in savings leaves the U.S. retirement system every year because Americans who switch jobs prematurely cash out their workplace retirement accounts and pay taxes and penalties on those cash-outs, according to Employee Benefit Research Institute (EBRI) data cited by RCH.
Workers with less than $5,000—the focus of the auto portability service—cash out at the time of their job change at much higher rates than other job-changing workers. Within this cohort, cashout rates for job-changing minorities, low-income workers, and women are also higher than average.
Retirement Clearinghouse developed its auto-portability solution in conjunction with the private and public sectors to reverse this trend. EBRI estimates that if auto-portability was broadly adopted, over the course of a 40-year period, an additional $1.5 trillion in savings would be preserved in the U.S. retirement system.
The consortium members established PSN to utilize Retirement Clearinghouse’s auto portability solution to build a nationwide digital hub connecting workplace retirement plan recordkeepers and the plan sponsors they serve. PSN will act as a clearinghouse for automatically locating a participant’s active workplace retirement account in their current employer’s plan and transferring the same participant’s account from their prior employer’s plan into their active account. The new service is expected to go live for participants in plans under Empower’s administration in the first quarter of 2025.
The Portability Services Network will be majority owned by RCH with Robert Johnson as its chairman and is designed to include up to six recordkeepers as owners, a group which now includes Empower. PSN’s owners will govern the network as an industry utility designed with the goal of operating at the lowest cost to workers participating in auto portability. PSN is open to all recordkeepers to connect. The recordkeepers that own or participate in PSN will not receive any compensation for facilitating auto portability transactions from participants.
SEE ALSO:
• Auto Portability’s Big Move: Major Recordkeepers Form Consortium with RCH
• The Big Shift Towards Auto Portability
• 2022: A Most Consequential Year for Retirement Savings Portability
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
