Vanguard Group will introduce an auto-portability service for its 401(k) plan sponsor clients and their participants, the record keeper said Tuesday.
Vanguard announced plans to work with Retirement Clearinghouse, or RCH, to provide plan sponsors with a portability solution aimed at simplifying small-balance 401(k) rollovers. The service is expected to launch in mid-2022.
"As part of Vanguard's mission to serve all investors, we have a long legacy of challenging convention and pursuing innovative solutions that help improve outcomes for millions of retirement savers," said John James, managing director and head of Vanguard's institutional investor group, in a news release. "Together with RCH, we aim to help the most vulnerable plan participants combine their retirement assets, capture the vast benefits of a 401(k) plan, and enhance their overall financial wellbeing."
RCH's auto-portability program automates the movement of an employee's 401(k) savings account from their former employer's plan into an active account with their current employer's plan. It was first piloted in 2017 and in 2019, the Department of Labor granted RCH the ability to expand the program, which is aimed at reducing plan leakage and missing participants.
The RCH service can also help simplify plan administration and improve plan compliance by reducing the instances of abandoned accounts and uncashed checks, the Vanguard news release said.
"Our partnership with Vanguard represents a giant leap forward in the campaign to make auto portability for small accounts the new 401(k) plan default process when participants change jobs," said Spencer Williams, founder, president and CEO of RCH, in the news release. "By working with us to expand the nationwide, electronic network connecting employer-sponsored plans, Vanguard is helping simplify the 401(k) rollover process and giving more Americans the opportunity to strengthen their outcomes in 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 account savings 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.
RCH developed a "locate, match and transfer" technology that involves periodic queries of cooperating record keepers' systems to ascertain if the IRA 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, according to a 2018 Labor Department advisory opinion.