The Employee Benefit Research Institute (EBRI) estimates that if Americans were able to effortlessly, automatically roll their 401(k) balance over to a new employer every time they switch jobs, they would have an additional $2 trillion in retirement savings by age 65. This would be because they do not cash out of their plans when switching jobs. It underscores the value of auto portability for helping to bridge the retirement savings shortfall, EBRI says.
Jack VanDerhei, research director at EBRI, presented these findings at a recent Financial Services Roundtable, “Retirement Plan Portability & Public Policy.”
“Auto portability is needed now more than ever to help tens of millions of hardworking Americans improve their retirement readiness,” says Spencer Williams, president and CEO of Retirement Clearinghouse, who also spoke at the forum and whose firm has developed an auto portability recordkeeping system. “Leading industry organizations and government officials are beginning to recognize that auto portability, which can be readily adopted by plan sponsors with minimal effort, is critical for plugging cash-out leakage from the 401(k) system and preserving savings already set aside for retirement—particularly for low-income and younger workers.”
EBRI’s research also found that if all participants with less than $5,000 in their retirement accounts had their account automatically rolled over to a new employer, they would have an additional $1.5 trillion in retirement savings by age 65. This would reduce the retirement deficit for those between ages 35 and 39 by 20%. Because of the long time in their savings horizon, Americans between the ages of 25 and 34 would experience the largest increase in savings, particularly those in the lowest income bracket.
The Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings has recommended that the nation create a private-sector retirement security clearinghouse that could handle auto portability.