Auto-portability helps everybody, and hurts nobody
“So, whose ox are you goring with auto-portability?”
This is what a senior, well-respected retirement policy official asked my team at a sit-down meeting in Washington, D.C. Over the course of her long career, she had heard innumerable proposals to correct the savings shortfall in the U.S. retirement system. Many of them had a downside for at least one constituency in the retirement services universe, and she assumed that auto-portability had one too.
But after a bit of thought we answered, confidently and correctly, “No one’s ox.”
She couldn’t believe it, but auto-portability — the routine, standardized and automated movement of a retirement plan participant’s 401(k) savings account from their former employer’s plan to an active account in their current employer’s plan — can help more Americans increase their retirement savings, and empower more sponsors to improve their plan performance metrics, without harming anyone.
And best of all, it can be implemented across the entire retirement system voluntarily, with little cost — and significant upside — to the private sector.
At its Policy Forum this past December, the Employee Benefit Research Institute unveiled its Retirement Security Projection Model. According to EBRI’s projection, if auto-portability is widely implemented, a whopping 23% more Americans who are in the age cohort of 35- to 39-years-old, and have 20 or more years left before they retire, would be able to save enough money for a secure retirement. By way of comparison, automatic IRA programs would increase the ranks of secure retirees by 10.6%, and mandated universal defined contribution plans would generate a 28.2% increase in the number of Americans who would realize a secure retirement.
Examining the next age cohort — Americans between 40 and 44 years old — the scores would be +18% for auto portability, +9.9% for auto IRAs and +25.9% for mandated universal coverage.
In other words, auto-portability would help more Americans overcome a projected retirement savings shortfall than auto IRA programs, and fewer Americans than a mandated universal defined contribution plan. However, unlike the latter two alternatives, auto-portability adoption doesn’t require a massive regulatory — and, surely, costly and disruptive — overhaul of the retirement system and its existing infrastructure.
Solution is nearly ready
The key to the seamless and low-cost adoption of auto-portability is a system-wide utility to facilitate the standardized movement of participant records and savings between record-keepers. This utility is underpinned by a technology solution that can automate something the vast majority of plans can already do — accept roll-ins from other plans. That technology solution is currently undergoing beta-testing with a large plan and its record-keeper, with an anticipated “go live” date this summer followed by a report summarizing the testing results.
The full benefits of auto-portability also would be helped along by the U.S. Department of Labor issuing its long-pending auto portability advisory opinion addressing the use of negative consent for participants who do not respond to repeated notices. While auto-portability is being adopted today using an affirmative consent approach, there will always be a group of non-responders, particularly participants with very small account balances. The guidance in the advisory opinion would provide a clear legal signal to both plan sponsors and record-keepers that need to know how they should proceed if a terminated participant doesn’t respond to multiple notices about their stranded account.
With a modest effort from the private sector, and an “all clear” from the government, auto-portability can finally plug the gaping hole that allows billions of dollars in savings to leave the U.S. retirement system every year. And since auto-portability has no downside for any party in the retirement services universe, it’s something that Americans and their elected officials on both the left and right can feel comfortable supporting.
Spencer Williams is President and CEO of Retirement Clearinghouse, a portability solutions provider.