Auto portability is a powerful innovation that’s addressing one of the most persistent challenges in the retirement industry: lost and forgotten 401(k) accounts. Auto portability has emerged as a solution that has the potential to preserve retirement savings for millions of American workers, particularly those from minority communities.
What is auto portability? Simply put, it’s an automated way of seamlessly transferring small 401(k) balances (under $7,000) from a previous employer’s plan to an active account in a new employer’s retirement plan. This approach tackles a critical issue in the country’s retirement savings ecosystem – the massive loss of retirement funds when employees change jobs.
Over 15,000 retirement plans, representing approximately 5 million participants, have already signed up for auto portability, according to the Portability Services Network (PSN), according to a recent BenefitsPro article. PSN achieved this milestone in its first year of operation. The rapid uptake of auto portability signals a significant shift in how the industry is approaching retirement savings preservation.
The potential financial benefits are eye-opening. Research from the Retirement Clearinghouse (RCH) estimates that widespread adoption of auto portability could:
– Preserve $1.6 trillion in retirement savings over 40 years
– Generate $744 billion in additional retirement income for 98 million minority job-changers
– Help 30 million Black Americans preserve $216 billion in incremental retirement wealth
The initiative has received support from major asset managers, including Alight, Vanguard, Fidelity Investments, Empower, TIAA, and Principal. SECURE 2.0 has also played a key role in enabling and accelerating auto portability.
Why does this matter? Traditionally, systemic frictions in the U.S. retirement system have made it challenging to consolidate and preserve 401(k) savings during job transitions, resulting in $92 billion in cash-out leakage. Auto portability addresses this by:
– Reducing administrative complexity and fiduciary risk
– Preventing premature cash-outs
– Supporting financial security for employees, especially those from minority communities
– Aligning with broader goals of retirement savings preservation
Robert L. Johnson, Chairman of PSN and RCH, encourages more plan sponsors and recordkeepers to participate. The overwhelming positive response from the industry suggests a transformative moment in retirement planning.
For employers and retirement plan advisors, auto portability is an opportunity to make meaningful, long-term financial impact for employees across diverse backgrounds and dramatically minimize leakage from the nation’s retirement plans.
