The movement to auto-portability continued to grow on Thursday with the announcement that Principal Financial Group will join Portability Services Network (PSN) alongside TIAA, Empower, Fidelity, Vanguard, and Alight at the Retirement Clearinghouse-backed initiative.
According to PSN, the consortium of retirement plan service providers is focused on helping America's “under-served and under-saved workers” improve their retirement outcomes by making it easier to transfer their workplace retirement accounts when changing employers.
Principal is a board member and one of seven owning members of PSN, which utilizes the auto-portability solution created by RCH. The latter was founded by billionaire Robert Johnson, RCH and PSN chairman.
“We are excited to have Principal join the consortium of recordkeepers that are working together with Portability Services Network to improve workers’ retirement security,” Johnson said in a statement. “The company’s leadership, action, and progress to increase financial access and inclusion will help more people benefit from auto-portability – in particular people of color, lower-income workers, and women, who have higher than average cash-out rates.”
RCH argued that employees changing jobs more frequently and a limited ability to match participant accounts across plan provider systems have increased the need for auto-portability—defined as automatically transferring an employee’s retirement savings from their prior employer’s plan to their new employer’s plan.
Approximately $92 billion in savings is prematurely cashed out of workplace retirement accounts every year, it added, leading to additional tax implications and early withdrawal penalties for workers, and it disproportionately impacts those with lower retirement account balances—typically less than $5,000.
PSN aims to assist workers with lower balances who change employers by automatically matching and moving their workplace retirement savings to their new retirement plans.
It said its goal is to establish a nationwide digital hub connecting workplace retirement plan recordkeepers and the employers they serve. The automation process will supposedly help workers avoid unnecessary complications as they move assets into 401(k), 401(a), 403(b), and 457 accounts, which could mitigate early plan cash-outs and enable financial security for more American workers.
Citing Pensions & Investments data, the consortium currently represents approximately 82 million workers across more than 185,000 employer-sponsored retirement plans.
As the latest owning member to join PSN, Principal added approximately 11 million retirement plan participants and over 46,000 plans to the coalition. The new service is expected to go live for participants in plans with administrative services provided by Principal in early 2025.
