Robert L. Johnson, Founder and Chairman of The RLJ Companies and majority owner of Retirement Clearinghouse, LLC, applauds Alight Solutions for spearheading the launch of the Retirement Clearinghouse Auto Portability program, which makes it easier for U.S. workers to move 401(k) assets from one employer plan to another, thereby reducing premature cash-outs, preserving retirement savings, and improving financial wellbeing.
Alight, a leading provider of next level human capital and business solutions, will offer the auto portability solution to its client base of 185 defined contribution plan sponsors serving nearly five million employees at the end of this year. Alight's clients who are supportive of auto portability include Cummins, Huntington Ingalls and UPMC, among others.
“I congratulate Alight Solutions for displaying the conviction and initiative to begin the widespread adoption of auto portability,” said Mr. Johnson. “With auto portability on the cusp of mainstream adoption, our nation has a promising opportunity to finally close the retirement-savings gap for Blacks and other minorities. I hope other recordkeepers will quickly follow Alight’s lead. Workers changing jobs often find cashing out to be the easiest option, and cash-out leakage is a critical reason that we have a nationwide retirement savings shortfall. The hardest-hit are workers who are traditionally underserved, especially minorities.”
Job-changing workers cash out their 401(k) plans and pay taxes and penalties in the amount of $92 billion every year, according to the nonpartisan Employee Benefit Research Institute (EBRI), the retirement services industry’s gold-standard research provider. Black and Hispanic workers are the most adversely affected by this phenomenon—63% of Black and 57% of Hispanic workers cash out upon changing jobs. Low-income and younger workers also have high cash-out rates, as 50% of workers earning $20,000 to $30,000 and 44% of workers between ages 20 and 29 cash out within a year of switching jobs. The private sector, led by Retirement Clearinghouse (RCH), developed the auto portability solution to alleviate this crisis.
“Job losses, furloughs and economic instability are placing a considerable financial strain on American workers and their families, impacting their day-to-day financial situation and their ability to save adequately for retirement,” said Alison Borland, Executive Vice President of Wealth Solutions at Alight Solutions. “Providing workers with an easy way to move their retirement assets from job to job will allow savers with even modest balances to begin accumulating meaningful retirement savings. We are proud to be the first to adopt this important solution, and encourage employers and other recordkeepers to add this innovation and help workers achieve a secure retirement.”
Auto portability (https://www.rch1.com/auto-portability) is the routine, standardized, and automated movement of a worker’s 401(k) savings account from their former employer’s plan to an active account in their current employer’s plan. The U.S. Department of Labor (DOL) issued regulatory guidance in July 2019 and November 2018 which cleared the way for plan sponsors and recordkeepers to adopt the technology enabling auto portability.
The RCH Auto Portability service, which automates the consolidation process for small accounts, has been in operation on a pilot basis since 2017. On behalf of a large plan sponsor in the health services sector, RCH completed the first-ever fully automated, end-to-end transfer of retirement savings from a safe-harbor IRA into a worker’s active account in July 2017. Since that time, more than 1,600 workers have consented to have their former-employer plan accounts transferred into their current employer’s plan.
“Our vision is to dramatically reduce both premature cash-outs and savings depletion from fees charged to stranded, small-balance IRAs by providing an automated method for consolidating workers’ retirement accounts as they change jobs. These goals will be accomplished through the construction of a nationwide, electronic network that connects all employer-sponsored plans,” said Spencer Williams, Founder, President, and CEO of Retirement Clearinghouse. “We are pleased that Alight shares that vision, and has stepped up to the plate to turn it into a reality for its clients. From this point forward, each recordkeeper that implements the technology powering auto portability will expand the network until it reaches its full potential.”
To learn more about RCH’s suite of portability services, please visit https://rch1.com/plan-sponsors/rch-portability-services.
Auto Portability + SECURE Act Provisions = Massive Decline in Retirement Savings Shortfall
EBRI has been instrumental in documenting auto portability’s potential benefits. EBRI research estimates that if all U.S. retirement savers had access to auto portability, nearly $1.5 trillion in additional retirement savings would be retained in their 401(k) savings accounts over a 40-year period. Widespread adoption of auto portability would also preserve approximately $191 billion in savings for 21 million Black Americans and $619 billion for all minority workers.
Furthermore, EBRI research predicts auto portability can add significant value to the provisions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which includes the largest package of 401(k) improvements in history, and was signed into law in 2019. EBRI’s findings indicate the SECURE Act will reduce the U.S. retirement savings shortfall by 3%, or $115 billion. However, when combined with auto portability, the country’s retirement savings shortfall would decline by 10%, or $383 billion—a further $268 billion over the SECURE Act provisions alone, according to EBRI.
About The RLJ Companies
The RLJ Companies, founded by Robert L. Johnson, is an innovative business network that provides strategic investments in a diverse portfolio of companies. Within The RLJ Companies portfolio, Johnson owns or holds interests in businesses operating in a publicly traded hotel real estate investment trust, Q a publicly traded content streaming company, private equity, automobile dealerships, and sports betting and video lottery terminal (VLT) gaming. The RLJ Companies is headquartered in Bethesda, MD, with affiliate operations in Charlotte, NC; Little Rock, AR; and San Juan, PR. Prior to founding The RLJ Companies, Johnson was founder and chairman of Black Entertainment Television (BET). For more information, visit www.rljcompanies.com.
About Retirement Clearinghouse
Retirement Clearinghouse, LLC is the leading provider of portability and consolidation services for defined contribution plans, acting as a trusted, unbiased intermediary between plan sponsors, participants, recordkeepers and other parties. Retirement Clearinghouse’s integrated financial technology, data and information solutions facilitate automated consolidation of small, redundant accounts for sponsors to improve plan performance metrics, and enable participants, regardless of account balance, to seamlessly transport their retirement savings through every phase of their careers.
Retirement Clearinghouse’s portability solutions have been proven to cut cash-outs by over 50% and significantly increase average account balances. The firm’s portability solutions include a domestic call center providing specialized assistance designed to enable end-to-end portability and account consolidation; uncashed check services; and the capability to search for lost and missing participants.
Retirement Clearinghouse (RCH) remains the only independent provider that defines its primary business as the consolidation of retirement savings into active 401(k) or IRA accounts and provides plans and their participants with services that streamline the seamless transfer of savings between retirement accounts.
Originally established as RolloverSystems in 2001, Charlotte, N.C.-based Retirement Clearinghouse works with more than 28,000 retirement plans and has helped guide over 1.5 million plan participants with more than $22 billion in retirement savings. Retirement Clearinghouse is a portfolio company of The RLJ Companies, founded by Robert L. Johnson. For more information, please visit www.rch1.com.