Spencer Williams is president and CEO of Portability Services Network, a retirement industry-led utility dedicated to the industry-wide adoption of auto portability; founder, president and CEO of Retirement Clearinghouse, a specialized provider of retirement savings portability and account consolidation services for America’s mobile workforce.
Russ Alan Prince: Retirement Clearinghouse’s digital auto portability solution recently went live through the Portability Services Network. What does this mean for the retirement services industry?
Spencer Williams: This is big news for the retirement services industry because it will allow tens of millions of under-saved and under-served Americans to easily transport their retirement savings with them as they change jobs and keep their savings working for them in the system to improve their outcomes in retirement.
In short, the Portability Services Network was created as an industry utility encompassing the nation’s leading workplace retirement plan record-keepers, including Alight Solutions, Empower, Fidelity Investments, Principal, TIAA,and Vanguard. These record keepers came together, under the leadership of Retirement Clearinghouse and our chairman, Robert L. Johnson, to form a nationwide 401(k) account “clearinghouse” for facilitating the seamless portability of 401(k) savings at the point when participants change jobs.
Historically, $92 billion in hard-earned savings would leak out of our country’s retirement system every year for one simple reason, the lack of seamless plan-to-plan portability made prematurely cashing out 401(k) accounts an easier option for job-changing participants than transporting their balances and consolidating them in their current employers’ plans. We at Retirement Clearinghouse developed auto portability—the routine, standardized and automated movement of a plan participant’s 401(k), 401(a), 403(b) and 457 retirement savings account with under $7,000 (as of December 31, 2023) from their former employer’s plan into an active account in their present employer’s plan—in order to help stem this cash-out leakage from the U.S. retirement system.
The establishment of the Portability Services Network and its infrastructure for aiding the nationwide adoption of auto portability represents the culmination of a years-long collaboration between the private and public sectors. Various regulators, lawmakers on both sides of the aisle in Washington, D.C., and businesspeople contributed to this milestone in the retirement services industry.
Prince: Why does the new mandatory distribution limit in the SECURE 2.0 legislation taking effect in 2024 create more urgency for an auto portability solution?
Williams: The increase in the limit for small accounts that plan sponsors are allowed to unilaterally roll out of their plans, from $5,000 to $7,000—under the SECURE 2.0 Act—will significantly expand the number of accounts from terminated employees that are in danger of being prematurely cashed out or rolled over into safe-harbor IRAs.
Indeed, according to our most recent Auto Portability Simulation, a jaw-dropping 342.2 million plan participants who have changed jobs could have their stranded small accounts forcibly rolled out of their former employers’ plans and into safe-harbor IRAs over the next 40 years! This is dangerous for participants because their hard-earned 401(k) savings could wind up in what are essentially money market products with low returns and if they moved and never updated their former employers’ plan record-keepers about their new addresses, they wouldn’t even know it!
However, our Auto Portability Simulation also found that over the same 40-year period, the nationwide adoption of auto portability would reduce overall cash-out leakage from the U.S. retirement system by $355 billion.
And the Simulation estimates an additional $1.6 trillion in savings would be preserved in our country’s retirement system including $216 billion for 30 million Black Americans. This is especially important because minority participants tend to cash out their 401(k) savings in former-employer plans within a year after they change jobs at rates that are higher than average.
Prince: What is an advisor’s role in getting plan sponsors to adopt auto portability, which may now be available through their plan record-keepers?
Williams: Advisors whose clients include businesses sponsoring employee retirement savings plans can help map out the process for them and get the ball rolling. They can help plan-sponsor clients check to see if their respective plan record-keeper is participating in the Portability Services Network, and if so, they can instruct them on working with the record-keeper’s client service team to adopt and take advantage of auto portability.
For advisors, recommending the adoption of auto portability is a no-brainer benefit for their plan-sponsor clients. By helping sponsors get rid of small accounts from former participants in their plans, auto portability enables them to reduce cash-out leakage among their terminated employees while strengthening essential plan metrics, such as average account balance and all at no additional cost to the plan sponsor.
It’s a no-brainer recommendation that can benefit individual clients and make a big difference in the lives of workers saving for retirement across the country over the long term.
Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.