Bipartisan legislation is introduced to preserve retirement savings by expanding automobile portability

Senators Tim Scott & Sherrod Brown leased by Robert L. Johnson for introducing the Advancing Auto Portability Act to allow traditionally underserved and undersaved Americans to preserve their retirement savings

CHARLOTTE, North Carolina, June 15, 2022 /PRNewswire/ — Robert L. JohnsonFounder and Chairman of The RLJ Companies and Chairman of Retirement ClearinghouseLLCapplauds Senator Tim Scott (RS.C.) and Senator Sherrod Brown (D-Ohio) for the introduction of the Advancing Auto Portability Act of 2022. US Senate legislation has the potential to preserve up to $1.5 trillion retirement savings for the next generation of workers by encouraging car portability. With automatic portability, a participant’s 401(k) account can follow them when they change jobs, reducing the risk of people cashing out their savings prematurely and improving retirement security.

“I congratulate the senators Tim Scott and Sherrod Brown for leading this bipartisan push to create wealth for underrepresented American communities. Automobile portability will help historically underserved and underserved workers, especially Black Americans, gain greater benefit from the American retirement system and realize the American dream of a financially secure retirement,” said Mr Johnson. “Enshrining automotive portability in law is an important step in our national effort to close America’s wealth gap.”

“This legislation recognizes that cash outflows — driven by the frictions that prevail in the transfer of money between plans in our country’s retirement system — have a very significant negative impact on Americans’ retirement outcomes,” said declared spencer williamsFounder, President and CEO of Retirement Clearinghouse. “401(k) savings portability will institute a new default in plan design that will allow participants to opt out to have their small balances automatically transferred to the plans of their new employers when they change jobs, instead of having to register. Senators Scott and Brown have crafted legislation that would make this default available to all plans in the US retirement system – a huge boost for America’s diligent retirement savers. The Pension Protection Act of 2006 gave the green light to automatic enrollment and the use of target date funds as default investment vehicles – and now we are closer than ever to a default setting for the automatic portability of small accounts, when changing jobs. Finally, leveling retirement savings outcomes is within reach.”

Get to the root of the problem

The lack of seamless portability of accounts across plans when participants change employers has always made cashing out an easier option than moving and consolidating 401(k) account balances. Cashing out a retirement savings account prematurely can have destructive consequences for retirement savers.

The Employee Benefits Research Institute (EBRI) estimates that up to $92 billion savings leave the U.S. retirement system every year because workers cash in their 401(k)s prematurely when they change jobs and pay taxes and penalties on those cash-outs. Retirement Clearinghouse research indicates that a hypothetical 30-year-old participant who cashes in a 401(k) account with $5,000 would lose today until $52,000 income they would have accrued at age 65, assuming the account would have grown by 7% per year.

Unfortunately, minorities and low-income workers are more likely to make this withdrawal decision. According to EBRI, 14.8 million plan members change jobs each year – and data from the largest pension plan managers indicates that almost a third (31%) of them will cash in their pension accounts. 401(k) savings within one year of moving to a new employer. However, these rates are higher among plan participants who belong to minority communities (63% for Black Americans and 57% for Latinos), who are between the ages of 20 and 29 (44%), or who earn $20,000 at $30,000 in annual income (50%). Similarly, the percentage is higher among women (41%), especially women aged 25-34 (71%).

“Women often end up having to work longer than expected due to unforeseen circumstances and expenses, especially if they outlive their spouse,” said Cindy HounsellPresident of the Women’s Institute for a Secure Retirement (WISER). “This new legislation will make it easier for women to overcome the inequalities that have historically placed them at a disadvantage when saving for retirement.”

Why automatic portability is the solution

To address this growing problem, members of the private and public sectors have worked together to develop and implement automatic portability – the routine, standardized, and automated transfer of a retirement plan participant’s 401(k) savings account. from his former employer’s plan to an active account. account under their current employer’s plan. Automatic Portability was designed and built to meet the needs of plan members with account balances below $5,000, who often do not have access to the portability solutions offered to their counterparts with larger accounts. The automatic portability solution is designed to connect archivists operating under the qualified 401(k) plan system in the United States, establishing a network that facilitates data flow. The Department of Labor provided Retirement Clearinghouse with guidance for its car portability service in 2018 and 2019.

EBRI estimates that widespread adoption of automotive portability would preserve up to $1.5 trillion additional retirement savings, measured in today’s dollars, in the US retirement system over a 40-year period. This $1.5 trillion would include approximately $191 billion for 21 million black Americans, and $619 billion for all minority savers.

In recent years, several large accountants of defined contribution plans have adopted automatic portability for the plans they administer. The Advancing Auto Portability Act supports the continued expansion of automotive portability by creating a $500 tax credit to help businesses, and especially small businesses, with the costs of implementing and making permanent the 2019 Department of Labor guidelines.

More information is available at https://rch1.com/plan-sponsors.

Automatic portability support

The National Urban League and National Association for the Advancement of Colored People (NAACP) sent letters to Mr Johnson in support of car portability.

Marc H. Morial, President and CEO of the National Urban Leagueended his letter of support by stating, “Based on the tremendous benefits of automotive portability, Urban League is pleased to join this public policy conversation because our entire economy benefits when Americans can afford a safe and timely retirement By strengthening the defined contribution leg of America’s “three-legged stool”, the Urban League believes that all sectors of our economy benefit, including the private sector, the public taxpayer and all levels of government Now is the time for all of us to work together to close the wealth gap and make retirement more secure for Black families The National Urban League supports all efforts to empower Black Americans and we are happy to be aligned with you on the issue of automatic portability.

Derrick JohnsonPresident and CEO of the NAACP, wrote in her letter of support, “Implementing automatic portability is a necessary and transformational tool to close the racial wealth gap. It will ensure that Black families and other communities of color have the infrastructure necessary to maintain economic stability for retirement.” He also wrote, “While automatic portability alone will not solve the racial wealth gap, it has the ability to positively support Black workers’ ability to create lucrative retirement investments by creating a streamlined approach to savings; an approach that reduces workers’ opportunities to As an organization committed to identifying solutions to the economic challenges and inequalities experienced by Black and other communities of color, the NAACP is committed to being a partner in advancing the implementation of automotive portability as a critical tool to address racialized economic inequality.”

To learn more about auto-portability, please visit https://www.rch1.com/auto-portability.

About the Retirement Information Center

Retirement Clearinghouse, LLC is the leading provider of portability and consolidation services for defined contribution plans, acting as a trusted and impartial intermediary between plan sponsors, participants, recorders and other parties. Retirement Clearinghouse’s integrated financial technology, data and information solutions facilitate automated consolidation of small, redundant accounts for sponsors to improve plan performance and allow participants, regardless of account balance, to carry their retirement savings in full transparency at each stage of their career.

Retirement Clearinghouse portability solutions have been proven to reduce withdrawals by over 50% and significantly increase average account balances. The company’s portability solutions include a national call center providing expert support designed to enable end-to-end portability and account consolidation; uncashed check services; and the ability to search for lost or missing participants.

Retirement Clearinghouse (RCH) remains the only independent provider that defines its core business as the consolidation of retirement savings into active 401(k) or IRA accounts and provides plans and their participants with services that streamline the transfer of savings between retirement accounts.

Originally established as RolloverSystems in 2001, Charlotte, North Carolina-retirement Clearinghouse works with over 33,000 pension plans and has helped guide over 1.7 million plan participants with over $27 billion in retirement savings. Retirement Clearinghouse is a holding company of The RLJ Companies, founded by Robert L. Johnson. For more information, visit www.rch1.com.

Media Contact:

Victoria Castelbuono
JConnelly for the Clearinghouse Retreat
(973) 590-9314
[email protected]

SOURCE Retirement Information Center

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