The Path of Less Resistance

 There was some good news — and some disappointing news — about the take-up of a “new” plan design last week.

It was the first anniversary of a coalition of recordkeepers called the Portable Services Network (PSN) — a consortium of firms that includes Alight, Vanguard, Fidelity Investments, Empower, TIAA and Principal — not to mention the Retirement Clearinghouse, whose long-term patience and commitment made the concept of auto-portability a reality. There’s even support for auto-portability in SECURE 2.0.     

The Good News

The good news: PSN reported that in its first year of operation — more than 15,000 plans representing approximately 5 million participants have signed up for auto portability. According to a press release, 549 auto portability transactions have been completed as of Dec. 1, 2024; and 7,841 auto portability transactions are “in motion” as of Dec. 1, 2024. In-motion transactions are those where the Retirement Clearinghouse has confirmed a match for an account holder of a small account stranded in a retirement plan or moved into a safe-harbor IRA (with the opt-out/consent notification process having been initiated). 

Why This Matters

Auto-portability is a process that facilitates an automatic rollover from one plan to another (or an IRA) when an individual changes jobs or otherwise terminates employment. Like auto-enrollment, it seeks to take advantage of behavioral finance — taking a complex process and creating a default that works to the benefit of the participant. As with automatic enrollment, participants can opt out — but in creating an “easy” path to do the “right” thing, it is hoped that not only will these balances remain as retirement savings, but that it will be easier for individuals to keep up with and manage their retirement savings.        

It’s a big deal — the Employee Benefit Research Institute has said that the leakage associated with job change could add up to $1.6 trillion in additional retirement savings over a 40-year period. More significantly, it could add up to $744 billion in extra retirement income for 98 million minority job-changers, with 30 million Black Americans expected to preserve $216 billion in incremental retirement wealth.

While there has been improvement over the years, those rollover decisions are — complicated. In fact, as I put together the financial components of my “retirement,” there was one aspect I dreaded more than any other. My balances were large enough that I didn’t HAVE to do anything more than leave my account “behind” — and for me that was certainly easier and less painful than going through the rollover process. 

That said, many don’t have that option — they are only presented with the option to roll it over to the IRA (that they probably don’t have) or a successor 401(k) (that they probably aren’t signed up for yet) — or to take it in cash. And I have to imagine that for the vast majority, taking it in cash is really the only option — even though they’ll wind up paying taxes and penalties that will significantly erode their balance — not to mention their retirement security.

The Disappointing News

PSN cited data by the Plan Sponsor Council of America (PSCA), based on the PSCA's survey of plans conducted in Sept. 2024, that found that — (only) 6% of all plans have implemented auto portability or will do so soon, including 12.5% of plans with between 200 and 999 participants, and 8.7% of plans with 1,000 to 4,999 participants.

And while that take-up rate was modest, that same survey found that 25.6% of plans are considering the implementation of auto portability, including 30.4% of plans with 1,000 to 4,999 participants and 47.5% of plans with over 5,000 participants. Not bad, considering that three years ago nearly 80% of plan sponsors surveyed hadn’t even heard of auto-portability!

All that said, for auto-portability to really work — to truly facilitate the movement of retirement savings from one plan to another — you need the broad network. More than that, you need the broad participation of the plan sponsor community to provide that option to retirement savers. Here’s hoping that in the months ahead more do. 

Because, thanks to the PSN it now seems that when it comes to retirement savings, you really, finally CAN take it with you!

- Nevin E. Adams, JD

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