Automatic portability seen as a stopper for small 401(k) plan leaks
In July 2019, the Retirement Clearinghouse gained an edge over its competitors when it received a Prohibited Transaction Exemption from the Department of Labor that allowed it to automatically transfer funds on a so-called negative consent basis, meaning that could transfer funds without participants explicitly consenting to the rollover. Generally, participants must affirmatively “enroll” in order to have their account balance transferred to another employer’s plan.
Retirement Clearinghouse — the only retirement account rollover company to receive such an exemption from the Department of Labor — is looking to grow its network of participating registrars. So far, it has two: Alight and Vanguard, which joined the clearinghouse in September and are expected to offer a self-porting service to its plan sponsor clients this year.
“We believe that others will join the network in the not too distant future,” Mr. Ringquist said, referring to archivists. He declined to say which or how many registrars should join the network or when. “We are under non-disclosure agreements with potential curators and cannot be more specific,” he said.
Archivists have been slow to join us due to the lengthy due diligence process they have to go through with the clearinghouse, he added. Once archive managers have cleared this hurdle, they must weigh automatic portability against other project priorities.
“In some cases, it could take a year or two to establish a priority queue,” he said.
Participating registry holders will use the same price to charge participants for the auto portability service, consistent with the price set out in the prohibited transaction exemption the Department of Labor granted Retirement Clearinghouse, Ringquist said.
Participants pay a one-time transaction fee for balances successfully transferred into their current employer’s plan. Fees are based on account size and never exceed $59, Ringquist said.
So far, Alight has signed up with a “handful of plan sponsors” – less than 10, Mr Long said – who have added automatic portability to their retirement plans. A total of 120,000 people are now eligible to have their small accounts moved, he said.
Virtually every plan sponsor he spoke to thinks auto portability is a good idea, but most don’t want to be first, preferring to wait until there are more people in the clearinghouse, a said Mr. Long.
Long predicts that automatic portability over time will be “standard operating procedure,” much like auto-enrollment and auto-escalation, as more plan sponsors implement the service. and that their worries about being among the first fade away.
Additionally, Long sees the portability of the automobile in pension plans as being particularly useful for employers in low-wage, high-turnover industries. One of its diet sponsor clients who has signed up for car portability, for example, is a large supermarket chain where “grocery bagging and shelf stocking” jobs don’t pay well or long term, he said.
“These are the types of businesses that need it the most,” he said, referring to automotive portability.