401(k) rollovers can be complex. Workers often make mistakes with 401(k) rollovers in their use of assets and account structures. Misguided 401(k) rollovers can contribute to costing participants thousands of dollars in savings. Some forget to transfer their savings, and others cash out their 401(k) accounts, incurring costly taxes and penalties. Auto-portability is a solution that exists to help mitigate such errors by assisting American workers. This helps participants to retain more of their retirement savings.
A recent Employee Benefit News article looked at the merits of auto-portability and the reasons why it hasn’t yet solved America’s rollover challenges. Simply put, auto-portability enables workers changing jobs to automatically roll over their retirement plan account from their previous employer to their new one. As the “auto” implies, it’s a hands-off process where the worker doesn’t have to do anything to transfer their savings from one workplace retirement account to another. Employees are notified, and they can opt out of the rollover if they want. But if they do nothing, the participants’ savings are transferred. By default, the 401(k) rollovers end up all in one place. In other words, their savings are automatically rolled over from Employer A’s retirement plan to Employer B’s.
Today, the five providers who offer the auto-portability feature are: Fidelity, TIAA, Alight, Empower, and Vanguard. Having more providers offer auto-portability as a plan design feature could expand its uptake, but employers must express their interest to make that happen.
Adding auto-portability to your retirement plan is a nice feature. Rollovers are critical to help improve retirement readiness. According to EBN, “The average 401(k) participant has 9.9 employers over the course of their career.”
American workers often neglect to roll over their retirement accounts from previous employers, resulting in forgotten accounts and savings that become harder to access as time goes by. This puts their retirement savings at risk. EBN cited data from the research firm Capitalize, which estimates there are approximately 24.3 million “lost” retirement accounts in the U.S., holding $1.35 trillion in assets.
To help Americans be more prepared for retirement, it’s critical for 401k rollover accounts to be consolidated. Auto-portability helps make it easier for workers to roll over their accounts and prevents “leakage,” the process by which savings drain from the nation’s retirement system, usually through 401(k) cash-outs when workers change jobs.
