While the use of auto portability for handling 401(k) accounts upon termination of employment might one day be ubiquitous, its first major rollout is expected next year.
After years of groundwork, Retirement Clearinghouse LLC received the green light from the Department of Labor to expand its auto-portability program, which experts expect will significantly reduce plan leakage and missing participants. The green light came by way of several pieces of guidance — a November 2018 advisory opinion that identified RCH as the fiduciary when a participant's small-balance terminated account or safe-harbor IRA are automatically rolled into a participant's current employer plan, and a final prohibited transaction exemption issued in July.
The prohibited transaction exemption, which was specifically granted to RCH, was required because RCH charges a fee to participants for its service.
When fully operational, the one-time fee RCH charges participants will average about $35 and can go as high as $59 for larger account balances, according to RCH.
No other company has publicly announced work on auto portability for 401(k) plans so far, sources said.
The Labor Department guidance was "the starting gun" for service providers and plan sponsors looking to adopt auto portability, said Michael P. Kreps, Washington-based principal at Groom Law Group LLP, which represents RCH.
The next step to widespread adoption is getting record keepers on board, said J. Spencer Williams, founder, CEO and president of RCH in Charlotte, N.C. "We are in deep and intense conversations with record keepers about how and when they will implement the technology so that their customers can then adopt it," he said.
Ever since the prohibited transaction exemption was granted, stakeholders have been more receptive to auto portability, said Neal Ringquist, RCH's executive vice president and chief sales officer. "I would say we've had more meetings and orientations with plan sponsors, consultants and, specifically, record keepers since July 30 than we had the prior five years combined. There's that much interest in auto portability."
RCH has completed an auto-portability orientation with 17 of the nation's top 21 record keepers in terms of market share, according to Mr. Ringquist. It plans an initial launch of its program with roughly four record keepers in the fourth quarter of 2020, he added. He declined to provide names of the providers.
"I'm pretty confident that we will have at least 25% (of the record-keeper) market share on that initial rollout and it could roll as high as 40% depending on one or two players," Mr. Williams said.
Timothy Rouse, executive director at the SPARK Institute, which represents retirement industry firms such as record keepers, investment advisers, mutual fund companies and benefit consulting firms, said record keepers support auto portability and any effort to preserve retirement assets.
"To be able to implement auto portability you have to be able to implement a network," Mr. Kreps said. "You have to build the pipes between the record keepers and all the plans."