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Data & Research December 5, 2024
Auto-Portability Reaches 2.2M Fidelity Participants in Attempt to Limit Cash-Outs
The firm’s Q3 report also found average 401(k) and 403(b) account balances at record levels.
Reported by Natalie Lin
Fidelity Investments’ retirement report for the third-quarter highlighted its recent adoption of automatic portability for plan sponsors, first allowed in 2024 as set by its inclusion in the SECURE 2.0 Act of 2022.
The feature that automatically sends workplace savings of less than $7,000 from a prior employer to a new one is designed to help prevent workers from cashing out their 401(k) savings during job changes, a common practice that results in taxes, penalties and diminished retirement funds.
According to Fidelity, 41% of workers cash out their 401(k) savings when switching employers. In response, Fidelity collaborated with the Retirement Clearinghouse to launch the Portability Services Network, a consortium of workplace retirement plan recordkeepers. PSN announced Tuesday it is currently operating with 15,000 retirement plans and 5 million participants part of the setup to roll over retirement savings to new employer accounts instead of sending them to a safe harbor individual retirement account, being cashed out or being left unclaimed.
Sterling Ingui, head of next generation retirement products at Fidelity, says provisions included in the SECURE 2.0 Act have not only made it easier for plan sponsors to offer auto-portability as part of their retirement plans, but also increased the maximum cash out threshold for distributions, allowing more participants to benefit from auto-portability.
“As a result, plan sponsors are increasingly beginning to understand the benefits of auto-portability, including increased participant satisfaction, the ability to attract and retain workers, and an expansion of their auto services suite – all at no additional cost to the plan sponsor,” says Ingui.
She adds that longer term, auto-portability can help to relieve plan sponsor concerns about small and terminated accounts in their plans. Additionally, plan participants are able to benefit from rolling money over faster to consolidate accounts and keep retirement money invested.
As of October, more than 6,000 Fidelity plans have integrated auto-portability, benefitting 2.2 million active participants in the Fidelity network. There is no charge for participating plan sponsors; for participating recordkeepers, the program can help assets stay within their platforms.
“Auto-portability is really intended to benefit under-served and under-saved groups, which can include communities of color, women, lower income, and younger workers,” Ingui notes.
Gen X Retirement Savers
Fidelity’s analysis also revealed record growth in average 401(k) and 403(b) balances, with savers in Generation X leading the charge. Members of this generation, many approaching retirement, increased both their workplace plan contributions and funds put into individual retirement accounts.
Roger Stiles, president of Fidelity Wealth, emphasized in a statement the urgency for Gen X to capitalize on this momentum: “The oldest individuals in this group are just five to ten years from retirement. This is the ideal time to focus on building and protecting their nest eggs for a secure and comfortable retirement.”
Average 401(k) and 403(b) balances at Fidelity increased 4% in Q3 2024 from last quarter. The average account balances of both 401(k) and 403(b)s in Q3 2023 saw even greater growth, with balances increasing by 23%.
Fidelity’s Q3 data was drawn from more than 49 million IRA, 401(k) and 403(b) accounts, underscoring the power of steady contributions.