401k auto portability took a huge step forward today with the announcement that Fidelity Investments, Vanguard, Alight Solutions and Retirement Clearinghouse have established an industry-first consortium to accelerate nationwide adoption.
The consortium of workplace retirement plan recordkeepers, called Portability Services Network, LLC, will allow American workers who change employers to have their workplace retirement savings automatically move to their new retirement plans.
“This is truly a historic moment for the industry, as well as our country.”
Retirement Clearinghouse’s Robert L. Johnson
Consortium members say automating the process of moving 401k, 401a, 403b, and 457 account balances from plan to plan when workers change jobs will help mitigate cashout leakage and preserve trillions of dollars in savings in the U.S. retirement system, particularly benefiting minorities, women, and low-income workers.
“I am delighted to see the leaders in the retirement services industry come together to accelerate nationwide adoption of Retirement Clearinghouse’s auto portability solution as part of our vision for helping under-served and under-saved Americans achieve financial security,” said Robert L. Johnson, Founder and Chairman of The RLJ Companies and Chairman of Retirement Clearinghouse. “This is truly a historic moment for the industry, as well as our country.”
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 cashouts, according to the Employee Benefit Research Institute (EBRI). 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 all job-changing workers.
In 2021, Fidelity said it processed 1.1 million mandatory cashouts for its plan sponsor clients. Of the 1.1 million, 66% were under $1,000 and therefore sent as checks, likely forever lost to retirement savings. And 55% of the 1.1 million were workers under the age of 35.
Cashing out has traditionally been seen as an easier option than the current manual, often cumbersome and time-consuming process of transferring from plan-to-plan—and 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.
Auto portability is estimated to help 67 million Black and minority workers save $619 billion, and 42 million women workers of all ethnicities save $365 billion.
“We are excited about the opportunity to work with RCH and other leaders in our industry to focus squarely on ‘connecting and protecting’ workers’ retirement savings, thereby improving retirement outcomes, particularly those for under-served and under-saved workers,” said Kevin Barry, President of the Workplace Investing Division at Fidelity.
“We were honored to be the first 401k plan recordkeeper to implement auto portability for our clients,” said Alison Borland, Executive Vice President of Wealth Solutions at Alight. “Two years later, industry awareness and the momentum behind this vital solution have grown significantly, and we look forward to working with our fellow industry leaders to reduce our country’s retirement-savings shortfall.”
“As an industry, we have a responsibility to American workers to remove barriers to retirement preparedness and increase their chances for investment success,” said John James, Managing Director and Head of Vanguard Institutional Investor Group. “The formation of this consortium directly complements Vanguard’s ongoing efforts to simplify investing and drive positive participant outcomes.”
The consortium currently represents approximately 43.8 million workers across more than 48,000 employer-sponsored retirement plans. Its members have established an independent entity, Portability Services Network, LLC (PSN), which will 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.
In addition to Alight, Vanguard, and Fidelity, the Portability Services Network will be majority owned by RCH with Johnson as its chairman, and is designed to include up to three additional major recordkeepers as owners. 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:
• 5 Reasons Why the New 401k Auto Portability Bill is So Important
• What 401k Advisors Need to Know About Auto Portability
• 401k Auto-Portability Takes ‘Giant Leap Forward’ with Vanguard, RCH Deal
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.
