Whether considered as a standalone policy initiative or in tandem with other legislation, implementation of auto-portability could reduce overall retirement savings deficits by hundreds of billions of dollars, according to a new study.
In “The Impact of Auto Portability on Preserving Retirement Savings Currently Lost to 401(k) Cashout Leakage,” the nonpartisan Employee Benefit Research Institute (EBRI) projects that as a standalone policy initiative, the present value of additional accumulations over 40 years resulting from “partial” auto portability applied to accounts with balances less than $5,000 would be more than $1.5 trillion.
Under “full” auto-portability – which would apply to all accounts regardless of the size of a participant balance – EBRI projects that the value would be nearly $2 trillion. What’s more, under partial auto-portability, those currently ages 25–34 are projected to have an additional $659 billion in retirement funds – increasing to $847 billion for full auto portability.
EBRI’s brief builds on and summarizes previous research it has conducted analyzing the impact of auto-portability, where a participant’s account from a former employer’s retirement plan would be automatically combined with their active account in a new employer’s plan. In theory, this would help keep DC assets in the retirement system and reduce leakage from cashouts upon employment termination.
Using EBRI’s Retirement Security Projection Model, the study projects that auto-portability has the potential to produce significant decreases in retirement deficits for specific demographic segments, ranging from 13% for single females to 29% for married households where the female dies first. For households with 21-30 years of future savings eligibility, the decreases range from 21% for single females to 38% for married households where the female dies first.
“When considered in tandem with other legislative initiatives that expand workplace access to retirement plans, we found that the addition of auto-portability with auto-IRAs resulted in an aggregate reduction in the Retirement Savings Shortfall by an incremental $293 billion, for a total reduction of $697 billion or 18.2% of the current deficit,” explains Jack VanDerhei, EBRI director of research and author of the study.
As noted, EBRI has previously studied this issue and these latest findings come on the heels of Retirement Clearinghouse receiving final approval from the Department of Labor granting relief from ERISA’s prohibited transaction restrictions to receive fees in relation to its auto-portability program, allowing the firm to move forward.