Auto portability is another way officials at Retirement Clearinghouse are trying to combat the issue of missing, terminated participants.
Driving the missing participant issue, in part, is the proliferation of small account balances, said Neal Ringquist, RCH's executive vice president of sales and marketing. By automatically consolidating those accounts, RCH hopes to reduce the likelihood that terminated participants will go missing.
A version of RCH's auto portability program has been launched so far with one plan sponsor — a large hospital services company with close to 300,000 employees. Spencer Williams, CEO of Retirement Clearinghouse in Charlotte, N.C., declined to name the company, which implemented auto portability last summer.
RCH found about 4,000 retirement plan participants at the large company who already had a safe harbor individual retirement account provided by RCH. The 4,000 participants were invited to transfer their IRA balances into the large company's retirement plan. (Safe Harbor IRAs are created when sponsors force out terminated employees with retirement account balances of less than $5,000).
Of the roughly 4,000 employees invited to move their IRA balances into the retirement plan, about 800 responded; of those who responded, 700 consented to the transfer and the remainder declined, Mr. Ringquist said.
Mr. Williams said RCH has been working with the Department of Labor for guidance on how to proceed with participants who are invited to participate in the program and do not respond.
Mr. Williams said RCH is ultimately hoping to move from a consent-based program to full auto portability, where participants' savings are automatically rolled into their new employers' plans.
Along with DOL guidance, RCH is looking for cooperation from record keepers.
The firm hopes to eventually accommodate matches from both safe Harbor IRAs and terminated participant accounts eligible for mandatory distribution (balances below $5,000) with active plans managed by any financial institution, Mr. Ringquist said.
RCH was the record keeper for the safe harbor IRAs used in the launch.
The record keeper for the hospital services company is Conduent Inc., Mr. Ringquist said.Robert Austin, Charlotte, N.C.-based head of research at record keeper Alight Solutions, said one of the biggest questions Alight has for RCH is on data security. "Sharing some confidential information with a third party is something that we would take very seriously," Mr. Austin said. "We want to make sure there is no possibility where things can go astray from a data perspective." Mr. Austin said the firm has held conversations with RCH about its auto portability initiative. Mr. Ringquist of RCH declined to comment on the firm's discussions with Alight, but noted some of the steps RCH has taken to address data security.
For example: "In any file sent, a Social Security number is never included with any personal identifiable information on the participant, and all files are well encrypted to standards acceptable to the record keepers," Mr. Ringquist said.
Additionally, record keeper participation in the auto portability program is "done via a common contract process" and record keepers "have direct input into the data security standards that apply," he said.
Auto portability is also on the minds of officials at PenChecks Inc., which provides benefit distribution services, including IRA solutions.
A possible solution that Peter Preovolos, La Mesa, Calif.-based CEO and president of PenChecks Inc., has advocated for involves having employees establish a single master IRA when they go to work for the first time (in addition to participating in their company's retirement plan). If a terminated employee goes missing, former employers could transfer the employee's savings from the company's retirement plan to the employee's master IRA, Mr. Preovolos said.
Social Security could keep track of the master IRA for employees and their employers, Mr. Preovolos suggested.