Alight Solutions will be the first record keeper to offer Retirement Clearinghouse's auto-portability program aimed at reducing plan leakage in 401(k) accounts upon termination of employment.
RCH has developed a novel "locate, match and transfer" technology that automates the consolidation process for small accounts and has been in operation on a pilot basis since 2017.
Alight will offer the auto-portability solution to its client base of 185 defined contribution plan sponsors serving nearly 5 million employees, according to an announcement Tuesday. Alight and RCH are targeting a Jan. 1 launch date and initial discussions with plan sponsors have begun, an RCH spokeswoman said in an email. "We will use the remainder of the year to continue those discussions and solidify commitments to move forward with auto portability when the implementation is complete or shortly thereafter," the spokeswoman added.
Alison Borland, executive vice president of wealth solutions at Alight, said in a news release that Alight encourages employers and other record keepers to add this innovation and help workers achieve a secure retirement.
When a participant with less than $5,000 in a 401(k) plan changes jobs and does not move his or her money, the plan can transfer the assets into an individual retirement account. The IRAs are then typically invested in either a money market fund or certificate of deposit, which do not offer high returns. Balances of more than $5,000 stay in the company plan, unless the participant moves it.
The RCH program involves periodic queries of cooperating record keepers' systems to determine if the individual retirement account owner has become a participant in an individual account plan through re-employment and then effects a transfer of funds from the individual's IRA to that new plan.
Workers who change jobs and cash out their 401(k) plans pay about $92 billion each year in taxes and penalties, according to an Employee Benefit Research Institute statistic cited in a news release.
"Job losses, furloughs and economic instability are placing a considerable financial strain on American workers and their families, impacting their day-to-day financial situation and their ability to save adequately for retirement," Ms. Borland said. "Providing workers with an easy way to move their retirement assets from job to job will allow savers with even modest balances to begin accumulating meaningful retirement savings."
RCH is able to offer its auto-portability program thanks to several pieces of guidance from the Department of Labor: 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 2019.
The prohibited transaction exemption, which was specifically granted to RCH, was required because RCH charges a fee to participants for its service.
RCH is "in talks with most of the top record keepers, as measured by participant market share," to potentially offer the auto-portability program, a spokeswoman said.
"Our vision is to dramatically reduce both premature cash-outs and savings depletion from fees charged to stranded, small-balance IRAs by providing an automated method for consolidating workers' retirement accounts as they change jobs," said J. Spencer Williams, founder, CEO and president of RCH, in the release.