A new report documents the key findings from auto portability’s inaugural market launch with Retirement Clearinghouse.
The auto portability service was launched in July 2017, and later that month Retirement Clearinghouse (RCH) executed what it says is the industry’s first fully automated, end-to-end transfers of retirement savings from an account holder’s safe harbor IRA into their active plan accounts. The service—conducted for a large plan sponsor in the health services sector—is ongoing and consists of four core technological processes: an electronic-record location search to identify multiple accounts potentially belonging to the same individual; a proprietary “match” algorithm to confirm the located accounts belong to the same participant; receipt of the participant’s affirmative consent to consolidate accounts in their active retirement plan account; and an automated roll-in transaction.
Boston Research Technologies compiled and analyzed data for more than 3,000 participants that had both a safe harbor IRA and an active defined contribution (DC) plan account with their current employer and found 15% of participants with matched accounts responded to the roll-in offer, which the report says is a rate measurably higher than direct mail solicitation and a strong indication of pent-up demand.
Ninety-one percent of the responding participants gave their consent to the transaction and had their savings consolidated in their active-employer plan. Only 9% of participants opted out of the program, with a majority of them choosing to cash out their accounts.
Of all the account balances that were consolidated through a roll-in, 56% were less than $1,000, which the paper says demonstrates that when given the choice, participants prefer to retain these balances and don’t want them automatically cashed out of plans.
Upon consolidation, workers’ median plan account balance increased by 46% and the combined future value of their preserved savings was more than $3 million at normal retirement age.
According to the report, 85% of participants with matched accounts did not respond to the roll-in offer, but it suggests their lack of response was likely the result of self-destructive behavior or lack of knowledge about where to start rather than a preference to cash out. The report found that 90% of account holders with less-than-$5,000 in their accounts opted to roll their assets into a safe harbor IRA. However, out of those account holders, 86% had been in a safe harbor IRA for more than one year, and 44% were in a safe harbor IRA for more than three years.
“While [the] report is very encouraging, the results so far represent just the tip of the iceberg,” says Spencer Williams, founder, president and CEO of Retirement Clearinghouse. “We can clearly see the potential to preserve trillions of future retirement savings dollars for tens of millions of hardworking Americans through the widespread adoption of auto portability.”
The full report, entitled “Making the Right Choice the Easiest Choice: Eliminating Friction and Leaks in America’s Defined Contribution System,” is at https://info.rch1.com/hubfs/brt_choice_white_paper_HR.pdf.