When you change jobs, it’s easy to let your 401(k) account or other retirement plan go missing in action. Now, three of the biggest plan administrators want to help you conveniently move your workplace retirement savings from one employer to another.
Vanguard Group, Fidelity Investments and Alight Solutions have joined forces to help speed the adoption of auto-portability, which lets workers automatically move old workplace retirement savings into their current retirement savings plan with a new employer.
The firms — in tandem with Retirement Clearinghouse LLC, which provides portability and consolidation services for defined contribution plans — are offering the assistance through a newly created consortium, Portability Services Network LLC. Included in this effort are 401(k), 401(a), 403(b) and 457 plans.
About $92 billion in savings exits the U.S. retirement system every year when workers who switch jobs cash out their workplace retirement accounts, paying income taxes and IRS penalties on the withdrawn amount, according to a Fidelity press release that cites research from the Employee Benefit Research Institute (EBRI).
Fidelity notes that the new auto-portability service is particularly focused on employees who have less than $5,000 in their workplace retirement accounts. This group is especially likely to cash out their accounts when leaving a job. According to the news release:
“Cashing out has traditionally been seen as an easier option than the current manual, often cumbersome and time-consuming process of transferring from plan-to-plan — and cash-out rates for job-changing minorities, low-income workers, and women are also higher than average. Retirement Clearinghouse developed its auto portability solution in conjunction with the private and public sectors to reverse this trend. EBRI estimates that if auto portability was broadly adopted, over the course of a 40-year period an additional $1.5 trillion in savings would be preserved in the U.S. retirement system.”
The new consortium represents about 43.8 million workers invested in more than 48,000 employer-sponsored retirement plans.
According to the press release, Portability Services Network will “use Retirement Clearinghouse’s auto portability solution to build a nationwide digital hub connecting workplace retirement plan recordkeepers and the plan sponsors they serve.”
Portability Services Network will serve as a clearinghouse for finding a participant’s workplace retirement account at the workplace he or she is leaving and transferring the account into the active account with the new employer.
For more on building a big nest egg, check out “7 Keys to Stress-Free Retirement Investing.”