On Dec. 6, the Employee Benefit Research Institute (EBRI) conducted kicked off its two-day 90th Annual Public Policy Forum. This forum’s theme was “A Path to a More Equitable Solution: Solving the Retirement Coverage Gap,” and it seems to have been highly popular, as it broke EBRI’s previous record for forum attendance.
Day One was highlighted by keynote speaker Kathleen Kennedy Townsend, Special Assistant to the Secretary of Labor for Retirement, who addressed the forum on the DOL’s three key retirement priorities—which included the need to address the persistent problem of portability and leakage.
The section of Townsend’s address that speaks to portability and cashout leakage is excerpted in the video below.
Townsend’s remarks to her EBRI audience revealed that she has a clear grasp of both the magnitude of cashout leakage, as well as its most-promising solution—plan-to-plan portability. Townsend was also passionate in her conviction to solve the problem, even sharing personal anecdotes to underscore her commitment.
On the topic of portability and leakage, Townsend opened by declaring that a “tribulation of the defined contribution system that has been allowed to fester is that of portability and leakage. Accounts get lost and they are difficult to transfer from one job to the next.”
Townsend cited annual cashout leakage estimates of between $60 billion to $100 billion, adding that “those who leave jobs with less than $5,000 are most vulnerable… and it’s not much better for those with more than $5,000, unless you really like solving Rubik’s cubes”—a reference to the difficulty facing participants who attempt “do-it-yourself” plan-to-plan transfers.
A fundamental problem, continued Townsend, is there exists “such little coordination” between providers that results in hurdles for participants who wish to move their retirement savings forward. Townsend likened the lack of coordination between DC providers to the problems she faced as lieutenant governor of Maryland, where she had to find ways to coordinate the emergency management efforts of disparate law enforcement agencies and first responders, ultimately requiring them to be physically housed in the same trailer during emergencies.
Using the “trailer” analogy, Townsend then offered her views on auto portability.
“I sure wish we could figure out what the ‘trailer’ could be for the retirement system. Maybe the answer lies with technology. I am certainly open to that. I’m not saying that people are dying because of this lack of coordination, but they are suffering. Alicia Munnell estimates that 25% of retirement savings are lost because of leakage and portability. A few years ago, EBSA gave the Retirement Clearinghouse an exemption to try to save the accounts under $5,000. To work at maximum efficiency would mean that all the recordkeepers would have to sign up, yet all the recordkeepers have not signed up. Why not? It’s as though the FBI and Montgomery County Community College are refusing to get into the trailer…it doesn’t make any sense.”
Townsend went on to share multiple, anecdotal experiences of family, friends and acquaintances who’ve have firsthand experience with a lack of portability. Townsend first described the experience of her son-in-law, who spent 15 hours trying to get his $8,000 retirement savings account from one employer to the next, adding: “this is an extraordinary waste of time.”
Townsend then turned to the experience of her friend David John, AARP, who met with similar travail, exclaiming: “…and he’s an expert!”
Finally, Townsend indicated that she’d encountered “countless young men and women” at the Department of Labor who’d “not transferred their retirement accounts because it’s so frustrating—it’s just too darn annoying and time-consuming.”
Townsend wrapped up her statements on portability and leakage by expressing support for a proposal by Alicia Munnell to standardize recordkeeper forms, and also citing a just-completed AARP survey indicating that 99% of respondents viewed portability of retirement savings as very/somewhat important.
Closing, Townsend added: “clearly, this is a challenge we should solve.”
I wholeheartedly agree.
Tom Hawkins is Senior Vice President, Marketing and Research with Retirement Clearinghouse, and oversees all key operational aspects of this area, including RCH’s web presence, digital marketing and plan sponsor proposals. In other roles for RCH, Hawkins has performed product development, helped lead the company’s re-branding, evaluated and organized industry data, and makes significant contributions to RCH thought leadership positions.
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