While it's not the Dream Team coming together to win Olympic gold or the Avengers assembling to save humanity, as far as the retirement industry goes, the nation's top record keepers forming a group aimed at reducing plan leakage and improving participants outcomes is a major development, stakeholders said.
The Portability Services Network, an industry-led auto-portability consortium, officially goes live Oct. 1, and sources believe it will have a positive impact.
"Never before have major competitors all sat around the same table, not focused on how they can compete with each other, but focused on how they can work together for the good of the undersaved and underserved," said Dave Gray, head of workplace retirement offerings and platforms at Fidelity Investments. "It has been an incredible experience in great partnerships, commitment to a common cause, a commitment to common principles."
Fidelity, Vanguard Group and Alight Solutions, in coordination with Retirement Clearinghouse, which has developed a service that helps automatically move participants' savings into retirement plans at their new employers, announced the formation of the Portability Services Network in October 2022. Since then, Empower Retirement, TIAA-CREF and Principal Financial Group have joined as owner-members, representing about 82 million workers across more than 185,000 employer-sponsored retirement plans, according to PSN.
The six record keepers and Retirement Clearinghouse jointly own the PSN. Each record keeper that has joined so far or that might in the future will sign the same operational agreement. The same is true for any plan sponsor. "The nature of Portability Services Network is such that it creates a level playing field for record keepers, a level playing field for plan sponsors, a level playing field for participants," said J. Spencer Williams, founder, president and CEO of Retirement Clearinghouse, or RCH.
When a participant with less than $5,000 — and as of Dec. 31, $7,000 — in a 401(k) plan changes jobs, plan sponsors can offer them the option to cash out their balances, or transfer the funds to an individual retirement account or the worker's new employer's plan. But those who transfer their funds to an IRA often wind up paying much higher fees than they were in their 401(k) plan. And if a participant doesn't make a choice, the plan sponsor can roll that money into an IRA for the participant or send the participant a check. The IRAs are typically invested in either a money market fund or certificate of deposit, which do not offer high returns.
Greg Long, head of public policy at Alight, said the industry recognized there was an issue with millions of small accounts that often lead to plan leakage when a participant changes jobs.
"So we took it upon ourselves to say, 'What's the right way to solve it?' and importantly, to do it as a utility," Long said. "Like a service that we all leverage, just like your public water and gas utilities: Everybody uses it, they pay a fee to maintain good service, but nobody at the water company is getting rich. And that's the idea of PSN: To create a service that solves a problem that helps everyone, it makes the entire system more healthy, but it's a not a profit-making motive."
None of the six record keepers that have joined the PSN as owner-members, nor any other record keepers that join the network in the future will receive a dime from conducting an auto-portability transaction, according to Williams.
When the network identifies an account to transfer to a new employer's plan, it will then charge the participant a maximum one-time fee of $30. That money will go to the network itself to cover operating costs, Williams explained, and the PSN will likely reduce fees as it gains scale.