In today’s highly mobile workforce, nearly nine in 10 employees with access to an employer-sponsored defined contribution plan consider auto-portability to be a valuable benefit. The 401(k) plan default feature automatically transfers small-balance retirement savings when participants change jobs.
“The findings of this year’s Retirement Confidence Survey clearly demonstrate that the vast majority of plan participants would welcome the opportunity to automatically move and consolidate their 401(k) savings when they change jobs,” said Spencer Williams, founder, president and CEO of Retirement Clearinghouse. “This very strong support for auto portability among participants has not budged over a span of six years.”
Retirement Clearinghouse partnered with the Employee Benefit Retirement Institute on the latest Retirement Confidence Survey, which gauges the views and attitudes of working-age and retired Americans related to various aspects of retirement.
When asked how valuable it would be if their retirement plan savings in a previous employer’s plan were automatically transferred to their current employer’s plan if they changed jobs, 85 percent of respondents indicated that they would value such an automatic transfer.
Furthermore, those participants who stand to benefit the most from auto-portability — including minorities, younger participants and lower-income workers — want it most.
Every year, based on EBRI data, $92 billion leaves the U.S. retirement system when job-changing participants prematurely cash out their 401(k) savings accounts and pay related taxes and penalties.
Black and Latinx workers are the most adversely affected by this phenomenon —63 percent of Black and 57 percent of Latinx workers cash out within a year of changing jobs. Low-income and younger workers also have high cash-out rates, as 50 percent of workers earning $20,000 to $30,000 and 44 percent of workers between ages 20 and 29 cash out up to a year after switching employers.
EBRI estimates that if all U.S. retirement savers had access to auto portability, approximately $2 trillion in additional retirement savings would be preserved in the U.S. retirement system over a 40-year period. These savings would include about $191 billion for an estimated 21 million Black Americans and $619 billion for all minority workers.
“EBRI research finds that auto portability can play a decisive role in shrinking our country’s retirement savings shortfall, as well as reducing the wealth gap for various demographics,” said Lori Lucas, president and CEO of EBRI. “Our survey findings indicate that workers see the value that auto portability can bring when it comes to retirement savings.”
Other survey findings include: