Two Important 401(k) Policy Efforts

According to an article on the 401K Specialist website, there are two important policy initiatives that could provide participants with low savings balances a retirement savings boost. The proposed initiatives deal with Auto Portability and missing participants, which we highlighted in a March 9, 2018, blog post. The policy efforts seem to have bi-partisan support (that’s almost shocking).

With regard to Auto Portability, the legislation is calling for the “routine, standardized, and automated movement of an inactive participant’s retirement account from a former employer’s retirement plan to their active account in a new employer’s plan.” This is critically important because of research that shows more than 50% of balances below $5,000 are more likely to be cashed out than moved to a new employer.

The total of “missing” accounts/participants is staggering.  We reported in a previous post that roughly 25 million abandoned accounts exist with approximately $8.5 trillion in assets. Finding the owners of these accounts will certainly go a long way to reducing the negative effects of low household savings. The Act proposes the creation of a national registry for participant contact information. The Social Security Administration and the Department of the Treasury are identified in the bill as responsible for the administration of the registry.

These initiatives should absolutely be supported.  Given that defined contribution plans are fast becoming the only retirement game, we must do whatever we can to make it easier for our workers/participants to accumulate retirement assets. As we know, too many of our workers (1 in 5 over 65 are still in the workforce) are facing the likelihood that retirement is not an option. Let’s try to reduce that percentage of workers forced to remain in the labor force and these legislative efforts will certainly assist in that effort.

 

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