When research performed eight years ago reveals that your 401k plan, by turning on portability and consolidation for all participants, has halved cashout leakage and dramatically reduced its small account problem, what do you do for an encore?
Plenty, it turns out. In a follow-up to the 2013 study by Boston Research Group (now Boston Research Technologies), a new study by Retirement Clearinghouse (RCH) revisited a mega plan sponsor’s ongoing experience in the subsequent period from 2013 to 2020, and found that not only have the benefits of the original program persisted, they’ve grown, with plan participants continuing to realize significant, measurable benefits.
The 2013 study, Eliminating Friction and Leaks in America’s Defined Contribution System, revealed dramatic benefits derived from a program of retirement savings portability as experienced by a top-five 401(k) plan sponsor.
With over 250,000 participants and a diverse workforce characterized by high employee turnover (20%-plus per year), the plan had experienced serious problems with excessive cashout leakage (47% across all balances) as well as a build-up of small, terminated participant accounts.
The original case study examined the five-year period from 2002-2006, where there was no particular emphasis on retirement savings portability, with the six-year period from 2007-2012, following the implementation of multiple retirement savings portability initiatives.
During the 2007-2012 period:
At that time, the results were so dramatic that the study’s author, Warren Cormier, could be excused for hyperbolically characterizing the program as the model for America’s defined contribution system, writing that, “if scaled and extended to the entire DC industry, [the program] could meet the goal of a 50 percent reduction in leakage/cash-outs.”
It turns out that Cormier’s 2013 exuberance was justified.
The March 2021 follow-on study examined a comprehensive dataset of 705,166 terminated participant elections, specifically analyzing the decisions of participants who terminated employment during the 2013-2020 timeframe and comparing them to the original study.
The new study delivers four key findings:
While the results have been overwhelmingly positive, the study identified one terminated participant balance segment – between $5,000 and $10,000 – that has not experienced the same levels of cashout reductions as other, adjacent segments, and suggests that public policy could play a role in opening this segment up to auto portability.
From the Olympian view, one can now conclude with assurance that retirement savings portability, as already implemented in the private sector, can be highly successful in preserving retirement wealth. Far from being hyperbolic, this new study makes it clear that Cormier’s 2013 conclusions were, in hindsight, eminently correct.
Tom Hawkins is Senior Vice President, Marketing and Research with Retirement Clearinghouse, and oversees all key operational aspects of this area, including RCH’s web presence, digital marketing and plan sponsor proposals. In other roles for RCH, Hawkins has performed product development, helped lead the company’s re-branding, evaluated and organized industry data, and makes significant contributions to RCH thought leadership positions.