A new consortium called the Portability Services Network (PSN) that helps employees who change employers automatically move their workplace retirement savings to their new retirement plan has gained another partner.
Colorado-based Empower will join forces with the Retirement Clearinghouse (RCH), along with Vanguard, Fidelity, and Alight, as part of the PSN to accelerate the nationwide adoption of auto-portability to help more American workers improve their retirement outcomes, according to the Feb. 13 announcement. The PSN focuses on retirement outcomes of U.S. employees who are under-served by the retirement plan system and have low savings.
“Advancing auto-portability adoption across the retirement system provides workers with the best chance to harness the power of all the assets they have earned through their workplace savings plans,” Empower President and CEO Edmund F. Murphy III said in a statement. “The creation of this consortium will ultimately be a great benefit to many workers and Empower is thrilled to join with RCH and our industry peers to advance this important initiative.”
The idea behind auto-portability is the belief that automating the process of moving assets in 401(k), 401(a), 403(b), and 457 accounts from plan to plan when workers change jobs will help mitigate plan cash-outs and potentially preserve trillions of dollars in savings in the U.S. retirement system.
According to Retirement Clearinghouse, the need for auto portability has been driven by the lack of seamless plan-to-plan savings portability amid a highly mobile workforce. Citing data by the Employee Benefit Research Institute, RCH notes that approximately $92 billion in savings leaves the U.S. retirement system every year because Americans who switch jobs prematurely cash out their workplace retirement accounts and pay taxes and penalties on those cash-outs.
Workers with less than $5,000 — the focus of the auto portability service — cash out at the time of their job change at much higher rates than other job-changing workers. Within this cohort, cash-out rates for job-changing minorities, low-income employees, and women are also higher than average, the firm adds.
To reverse this trend, RCH developed its auto-portability solution in conjunction with the private and public sectors. EBRI estimates that if auto-portability was broadly adopted, an additional $1.5 trillion in savings over the course of a 40-year period would be preserved in the U.S. retirement system.
The consortium currently represents approximately 43.8 million workers across more than 48,000 employer-sponsored retirement plans, based on data published by Pensions & Investments. With Empower now joining, approximately 17 million retirement plan participants in more than 70,000 plans will be added to the network.
Last fall, RCH announced the establishment of the PSN utilizing its auto-portability solution to build a nationwide digital hub connecting workplace retirement plan recordkeepers and the plan sponsors they serve. PSN will act as a clearinghouse for automatically locating a participant’s active workplace retirement account in their current employer’s plan and transferring the same participant’s account from their prior employer’s plan into their active account. The new service is expected to go live for participants in plans under Empower’s administration in the first quarter of 2025.
PSN will be majority owned by RCH with Robert Johnson as its chairman and is designed to include up to six recordkeepers as owners, a group which now includes Empower. PSN’s owners will govern the network as an industry utility designed with the goal of operating at the lowest cost to workers participating in auto portability. PSN is open to all recordkeepers to connect. The recordkeepers that own or participate in PSN will not receive any compensation for facilitating auto portability transactions from participants.
Also providing momentum to the effort was the enactment of the SECURE 2.0 Act of 2022, which includes a number of provisions that seek to help preserve retirement savings, including the codification of a safe harbor exemption permitting a retirement plan service provider (i.e., RCH) to provide employer plans with auto portability services.
“Empower is a welcome addition to the consortium of recordkeepers that includes Vanguard, Fidelity and Alight, and are working together to enable under-served and under-saved American workers pursue financial security in retirement — and close the gap in retirement savings that plagues our minority communities,” adds Robert L. Johnson, chairman of The RLJ Companies, RCH and PSN. “We look forward to working closely with Empower as they implement RCH’s innovative technology and offer auto-portability to their plan sponsor clients.”