How Much Would 401k Participants Save With Auto Portability?

Jack VanDerhei and Co. find extra dollars would result from assets currently leaking from plans

401k auto portability, rollovers, 401kA lot of money would be saved if this policy was implemented.

It might not have the clout of its auto enrollment and escalation older siblings, but new research from the Employee Benefit Research Institute (EBRI) estimates that the current and coming generations of retirement savers would have an additional $2 trillion, in today’s dollars, at age 65 if auto portability is fully implemented.

Jack VanDerhei and Co. find that the extra dollars would be the result of “preserving assets that are currently leaking out of plans due to workers cashing out their 401k accounts when changing jobs.”

These findings are part of EBRI’s Retirement Security Projection Model, which was used to create an “auto portability scenario” in which every participant consolidates their savings in their new employer plan every time they change jobs, i.e. all participants arrive at age 65 with one account and leakage is limited to hardship withdrawals.

The institute’s latest research underscores the value of auto portability as a solution for helping to bridge the U.S. retirement savings shortfall.

The findings were presented at “Retirement Plan Portability & Public Policy: Unlocking the Potential in Portability,” a forum hosted by the Financial Services Roundtable on March 30, 2017 in Washington, D.C.

Auto portability is the routine, standardized and automated movement of a retirement plan participant’s 401k savings account from their former employer’s plan to an active account in their current employer’s plan. The solution is designed to work within the existing platforms and data flows of the country’s qualified 401k plan system.

Auto portability was conceived and developed by Retirement Clearinghouse to meet the needs of participants with small account balances that lack access to the portability solutions afforded to larger accounts.

EBRI’s ’auto portability scenario’ also indicates that:

  • If all participants with less than $5,000 (indexed for inflation) in their 401k savings accounts would be subject to auto portability when they change jobs, they would have an additional $1.5 trillion in retirement savings (in today’s dollars) when they reach age 65.
  • The retirement deficit for Americans between ages 35 and 39 would be reduced by 20% if auto portability would be fully implemented. By way of comparison, the auto IRA programs proposed by the prior White House administration would result in only 10.6% RSS reduction.
  • Americans between ages 25 and 34—across all income brackets—would experience the largest percentage increase in savings at age 65, compared to their older counterparts. The biggest increase in savings would be experienced by workers aged 25 to 34 in the lowest income bracket.

“The simulated effects of auto portability on the ability of Americans to grow their savings for retirement are impressive,” VanDerhei said. “Our findings underscore the important role auto portability can play in helping to close the retirement savings shortfall in the U.S.”

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