Vanguard says it plans to introduce an auto portability service for 401(k) sponsor clients and their participants.
The firm has engaged Retirement Clearinghouse, LLC (RCH)—a provider of consolidation services for defined contribution (DC) plans and an RLJ Companies’ majority owned company—to provide plan sponsors with a new portability solution to simplify small-balance 401(k) rollovers, help more employees preserve their retirement savings and improve their chances of investment success. The service is expected to launch in mid-2022.
Research shows 401(k) participants with smaller balances often do not roll over retirement savings into their new plans or tax-advantaged vehicles after changing jobs, Vanguard says in the announcement. When a participant leaves a job with less than $5,000 in their 401(k), employers can transfer those accounts out of the plan and into a safe harbor individual retirement account (IRA), where fees can be higher. This can result in a proliferation of stranded safe harbor IRAs, participant cash-outs and forfeiture of future savings and returns, Vanguard adds.
To reduce the number of participant cash-outs or abandoned savings, the RCH 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. The service can also help simplify plan administration and improve plan compliance by reducing the instances of abandoned accounts and uncashed checks.
“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,” says Spencer Williams, founder, president, and CEO of Retirement Clearinghouse, LLC. “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.”