For industry-watchers accustomedto the glacial pace of change in America's retirement system,auto-portability represents an idea whose time has finally come.(Photo: Shutterstock)

With the announcement of the Department of Labor's recentactions, auto-portability has taken center stage in the retirement industry.

While auto-portability has been well-known to arelatively small group of industry insiders, its recent, widespread coverage in the media has many asking thequestion “What is auto-portability?”

With so many different — and important — perspectives on thematter, the best answer will depend on who's asking thequestion:

One definition ofauto-portability in retirement plans.

Auto-portability is an innovative process added to an existingplan feature.

To those immersed in financial operations and technology,auto-portability is best-described as a process, characterized inutilitarian terms:

• Auto-portability is the routine, standardized, and automatedmovement of a retirement plan participant's 401(k) savings accountfrom their former employer's plan to an active account in theircurrent employer's plan.
• Auto-portability can be further-defined by the innovativefinancial technology that it embeds, including algorithms tolocate, match and transfer accounts, as well as a securityframework designed to protect sensitive participantinformation.
• Auto-portability's innovations are also designed to workhand-in-glove with an existing, commonly-used plan feature: theautomatic rollover.

Existing automatic rollover programs, while good for plansponsors, can harm participant outcomes due to their high cashoutrates, excessive fees and inappropriate investments.

Auto-portability addresses these flaws and can be incorporatedinto existing automatic rollover provisions and servicearrangements, allowing for easy adoption.

Auto-portability is sound retirement savings publicpolicy.

Legislators, regulators and retirement researchers recognize thesound public policy represented by auto-portability's positiveimpact on America's retirement system. The benefits are impressive,including minimizing unnecessary cashouts, facilitating retirementsavings consolidation, preserving retirement wealth and ultimately,increasing retirement security for millions of Americans.

These outcomes have a solid basis in foundational research. For example, EBRI's RetirementSecurity Projection Model (RSPM) predicts that auto-portabilityalone, when applied to balances less than $5,000, will reduce thenation's $4.1 trillion Retirement Savings Shortfall (RSS) by $1.5trillion. The RSPM model predicts further, significant incrementalbenefits when auto-portability is combined with other retirementsavings public policy initiatives, such as expanded access.

Auto-portability's systemic benefits explain its unprecedentedlevel of public policy support, including:

• The U.S. Department of Labor, as reflected in their recentactions.
•  Congress, including a 2017 letter from 11 RepublicanSenators and a 2015 letter from 11 Democratic Senators and HouseRepresentatives.
• Industry centers of influence, including the Bipartisan PolicyCenter, the ERISA Advisory Council, the American Benefits Council,DCIAA, WISER and others.
• Retirement researchers, including EBRI, LIMRA's SecureRetirement Institute and Boston Research Technologies.

Auto-portability is good for plans and is in the best interestsof participants.

For plan sponsors, auto-portability is unusually beneficial, asit simultaneously acts to reduce small balance accounts, minimizemissing participants and enhance plan metrics — all while improvingparticipant outcomes.

Under auto-portability, plan sponsors with automatic rolloverprovisions will still experience the benefits of reducingsmall-balance, terminated accounts, along with greatly-reducedparticipant cashouts. Importantly, new participants canautomatically roll-in balances from their previous employers.

For many plan sponsors — particularly those who experience highrates of employee turnover – the two-way benefits ofauto-portability could make the difference in a decision to adoptautomatic enrollment.

For 5.3 million American participants changing jobs each yearwith balances less than $5,000, auto-portability will simplifytheir lives and improve their retirement security. Today, theseparticipants experience cashout rates of 55% during the first yearfollowing a job change, and those who don't cash out can see theirsmall-balance savings exiled to dead-end safe harbor IRAs orforgotten altogether.

Following the widespread adoption of auto-portability, theseparticipants can rest easy with the knowledge that, by default,their balances left behind in a former-employer's plan will soonfollow them to their current-employer, saving them time and money,and significantly contributing to their financial well-being.

Auto-portability is good corporate citizenship.

As a voluntary program representing sound public policy anddelivering a clear societal benefit, the adoption ofauto-portability can be considered as an act of corporate socialresponsibility, while remaining a sound business decision.

Auto-portability's societal benefits apply to all small-balancejob-changing participants, but these benefits tend todisproportionately favor women, minorities, younger workers andlower-income segments – all shown to experience higher levels ofcashout behaviors following a job change.

Auto-portability is an idea whose time has come.

For industry-watchers accustomed to the glacial pace of changein America's retirement system, auto-portability represents an ideawhose time has finally come. This sentiment is perhaps bestexpressed by J. Mark Iwry, senior fellow in economic studies at theBrooking Institution and former senior advisor to the secretary ofthe Treasury, who recently opined in his column in The Hill:

“In…22 years…not much has changed: The decades-long quest forimproved pension portability remains a challenge. But last week,the Department of Labor issued further guidance to help addressit.”

Tom Hawkins is Senior Vice President, Marketing& Research at Retirement Clearinghouse.