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Financial Wellness Benefits Simplified by Auto-Portability

Financial Wellness Benefit

Financial Wellness Benefits Simplified by Auto-Portability

Financial wellness benefits are being offered by more employers, but workers continue to struggle with their financial health. Understandably, plan sponsors are concerned with their financial wellness benefits. MassMutual released a study in December 2019, which found that eight in 10 retirement plan sponsors believe their employees have financial difficulties, and 67% of sponsors are concerned about their workers’ financial readiness for retirement. In addition, that study found that plan sponsors are worried because they believe that workers’ retirement plan participation should be higher than it is.

There’s been a lot of buzz around the topic of financial wellness benefits. Financial wellness benefits can reduce employees’ stress, improve workplace productivity and drive down healthcare costs.  All of these can result in a boost to the companies’ bottom line. Nonetheless, one issue remains for employers —quantifying the benefits and return on investment of their financial wellness benefit programs. It’s challenging to put tangible data around how much a financial wellness benefit program has improved employees’ financial security or their retirement readiness. Every employees’ situation and goals are different. Quantifying the success of financial wellness benefit programs requires intense engagement with employees. Employers must thoroughly understand their living situations, spending, and savings habits to understand how much they need to save for retirement and get a good picture of a financial wellness benefit programs’ effectiveness. This can be both time-consuming for employers, and potentially intrusive to employees.

A BenefitsPro article authored by Spencer Williams, President of CEO of retirement savings portability purveyor Retirement Clearinghouse, touts auto portability as a solution to the financial wellness ROI conundrum for employers. According to Mr. Williams, “Auto portability — the routine, standardized and automated movement of a retirement plan participant’s 401(k) savings from their former employer’s plan to an active account in their current employer’s plan — can significantly streamline the process of completing a roll-in transaction for employees as soon as they join a new employer.”

The solution works by using algorithms designed to track down and identify participants with more than one 401(k) and begin the roll-in process. It’s a benefit to plan sponsors because they don’t have to spend money or engage participants as they would via traditional financial wellness programs. The auto portability roll-in process happens automatically, but it also gives participants the ability to opt-out.

Mr. Williams opined that seamless plan-to-plan auto portability is a much-needed financial wellness solution. He cited data from the Employee Benefit Research Institute (EBRI) that an estimated 14.8 million participants change jobs every year. In addition, nearly a third (31%) of 401(k) participants compromise their financial wellness by cashing out their retirement savings within a year of switching to a new employer, according to research from the largest plan recordkeepers cited by Mr. Williams in his article.

Auto portability for small balances or assisted roll-ins for larger balances has been shown to decrease cash-outs from retirement plans, thus improving financial wellness, Mr. Williams noted. And it appears to be something participants desire. He cited a proprietary 2018 Retirement Clearinghouse study, which found that 60% of participants would prefer an automated process that enabled them to consolidate their 401(k) accounts and update their addresses in their current employer’s plan.

In addition, EBRI estimates that auto portability would help to preserve up to $2 trillion (in today’s dollars) in the nation’s retirement system, which would clearly improve financial wellness and eliminate retirement plan leakage due to cash-outs across the board. The ROI is also measurable, because, once implemented, auto portability enables plan sponsors to demonstrate an average increase in average retirement plan account balances, as well as a reduction in cash-outs.

Mr. Williams explained the benefit of auto portability to retirement plan sponsors and participants this way: “Sponsors can demonstrate their commitment to financial wellness benefits by adopting a portability program in order to help new, current, and terminated employees improve their retirement outcomes.” We couldn’t have said it better.

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk
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