Boston Research Technologies: “Roll-Ins” Support Better Outcomes. Market research firm Boston Research Technologies (BRT) released a white paper examining the behaviors of workers when faced with the decision of what to do with their retirement savings when switching jobs. The paper continues research first began in 2013. As we know, leakage — where workers decide to cash out their retirement accounts when switching jobs — is a consistent problem in America’s defined contribution (DC) plan retirement system, especially among those with balances of less than $1,000.
BRT briefly summarized the research:
“In July 2017, Retirement Clearinghouse implemented the Auto Portability Initial Launch (the Program) for small-balance safe harbor IRAs (SHIRAs) with a large employer plan in the hospital services industry. The Program generated substantial, measurable activity as workers were offered the opportunity to consolidate a pre-existing SHIRA into their current, active employer plan. The results, analysis, and findings from the Auto Portability Initial Launch are documented herein.”
There were several key findings — all in favor of an auto portability option. All supported positive behaviors and essentially avoided leakage from retirement accounts with smaller balances. The majority of workers who were offered the opportunity to roll their orphaned SHIRA into their current employer-sponsored plan gave consent to do so. According to the BRT paper, this indicated pent-up demand, which was converted into saving behavior thanks to the auto portability opportunity.
In addition, the research shows that the decision to roll an orphaned SHIRA balance into an employer plan is a behavior-driven, not a demographic, decision. Furthermore, “A ‘negative consent’ mechanism, designed to enable the portability of small accounts held by participants who don’t respond to notices asking for roll-in consent, is essential for optimizing retirement outcomes,” the BRT paper observed. Repeated attempts to reach out to some workers to obtain their consent for the roll-in were not successful. However, the research indicates that eliminating “cognitive friction” — a decision point where workers actually have to “opt in” by giving their consent for the roll-in — could yield five times more savings. In addition to simplifying the roll-in decision, removing that friction also makes it cost-effective for even the smallest account balances.
Finally, the research found that workers who opted to roll their SHIRA balances into their current employer’s plan saw their median account balance increase by 46% — creating a solid floor from which to grow their savings for the future.
BRT points out that these results also do not support industry practices of automatically cashing out accounts with less than $1,000. However, removing some of the pain points and encouraging roll-ins across the industry would enable the preservation of tens of billions of dollars in retirement savings, just by capturing the assets in small orphaned accounts. That sounds like a great way to eliminate plan leakage and support better retirement outcomes.