Much has been accomplished over the previous 50 years, and more innovation is on the horizon. But before we can understand where we are and where we're going, we need to remember how we got here.

A long and winding road

One of the first innovations after ERISA was signed into law was the creation of the first 401(k) vehicle just four years later, in 1978. In many ways, the earliest 401(k)s were simply used as supplemental savings plans, until the 1980s, when the next big innovation occurred—the incorporation of daily valuations into 401(k) plans. It was a natural development, and coincided with an explosion of Americans investing in mutual funds and asking, "Why can't I see the value of my 401(k) investments in the same way I can see the valuation of my mutual fund investments?"

When 401(k) accounts began to resemble retail mutual fund accounts, we started to see a proliferation of funds that plan sponsors could offer participants. But most participants weren't investment experts, and found it difficult to understand the various investment funds and strategies they could choose. This complexity led many participants to become passive and inactive with regard to their 401(k)s—either they simply allowed their 401(k) savings to sit in a plan's default investment vehicle (typically a money market fund), or they didn't sign up to participate in their employer's sponsored plans at all.

As a result, innovators sought ways to automate functions that had required the participant to take actions that were in their best interest. Automated enrollment was developed to again transform the 401(k) plan, by giving employers the power to automatically sign up new and existing employees for participation in their defined contribution plans by default. Auto enrollment was designed to make the inertia described above work for, instead of against, plan participants.

Once enrolled, plan sponsors and recordkeepers and others in the retirement services industry hammered home that participants needed to keep their allocations up to date—and to do that, they needed to find a way to overcome their confusion over the funds available to them from their plans, and make selections. But as fund balances moved up and down, plan participants had to handle rebalancing themselves, and that dilemma (necessity is the mother of invention, after all) helped give birth to the target-date fund.

With target-date funds, which later became the default investment vehicles in 401(k)s, investment management professionals took over responsibility for asset allocation for participants.

Legislation pushed 'autos' over tipping point

Although the first target-date fund was created in the early 1990s by Wells Fargo Nikko Investment Advisors, target-date funds did not by and large become the default vehicles in 401(k) plans until a key piece of legislation was signed into law. After the Pension Protection Act was signed into law by President George W. Bush in 2006, plan sponsors no longer had to worry that they would be sued for automatically enrolling employees into their 401(k) plans. Auto enrollment skyrocketed as a result of this legislation, which also cleared the path for sponsors to make target-date funds the automatic default investment vehicles for employees who were enrolled in their plans.

But auto enrollment, and the default selections of target-date funds in 401(k) accounts, were missing a crucial link. When a participant changed jobs, what would happen to the savings in their 401(k) account in their previous employer's plan?

Plan-to-plan portability for plan participants did exist in the 401(k) system, but it was not seamless. On the contrary, without assistance from a recordkeeper or other retirement service provider, it was a time-consuming and expensive process. Many participants simply found it easier to prematurely cash out their 401(k) savings after leaving jobs, or to leave their 401(k) savings behind. The problem became so bad that the Employee Benefit Research Institute (EBRI) estimates that approximately $92 billion in retirement savings leaks out of the U.S. retirement system every single year—with the majority of it being the result of cash-outs.

On top of that, without an easy way to automatically move 401(k) savings upon job-change, auto enrollment and the increasing mobility of the workforce led to a plethora of small, stranded 401(k) accounts in plans.

That's what led Retirement Clearinghouse, in cooperation with industry recordkeepers as well as government officials and regulators, to introduce the concept of auto portability—the automated, routine, and standardized movement of a participant's retirement savings account (with less than $7,000) from their prior employer's plan into an active account in the plan sponsored by their current employer.

Auto portability was designed to help plan sponsors, recordkeepers, and participants work together to plug that $92 billion in cash-out leakage, so that small balances don't keep leaking out of the system, or stay stuck in defined contribution plans. Instead, they are preserved in the system, and can be consolidated by participants during their working lives. It's a simple concept for participants—"my retirement savings follow me when I change jobs."

Related: ERISA group urges DOL to simplify its new 401(k) 'automatic portability' rule

Our research estimates that, if auto portability were to be adopted nationwide over a 40-year period, $1.6 trillion in additional savings would be preserved in the U.S. retirement system, including $216 billion in extra retirement income for 30 million Black Americans.

And just like auto enrollment and the default selection of target-date funds, the adoption of auto portability was given a push by legislation. The Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act of 2022 cleared away the challenges faced by plan sponsors regarding auto portability adoption. It also raised the balance limit of 401(k) accounts eligible for auto portability from $5,000 to $7,000, as of December 31, 2023.

Retirement Clearinghouse and a group of six of the largest recordkeepers formed a network for automatic portability of small account balances, called the Portability Services Network (PSN). Since PSN's launch in October 2023, over 5,000 plans across the country have signed up for PSN Auto Portability.

A better solution for today's workforce

If you think about a defined benefit plan, it has many advantages, but its Achilles heel is that if you change jobs, that's it. Pensions are not portable. You can't take your pension assets with you when you go to another employer.

In today's highly mobile workforce (with EBRI estimating that the average worker will hold 9.9 jobs over a 45-year working life), PSN Auto Portability has fixed the challenges that heretofore prevented seamless plan-to-plan portability in the defined contribution system. Now, people really can take their benefits with them from job to job, and keep their retirement savings vested.

Looking ahead

We can be proud of all that our industry has accomplished on behalf of American workers in the 50 years since ERISA has been enshrined in law. Ongoing technological innovation is closing the circle from auto enrollment to the automatic consolidation of 401(k) accounts—giving plan participants more assets to optimize automatic investment programs with target-date funds, thanks to the ability to keep their accounts incubated in the retirement system.

And with the Saver's Match Program on track to replace the Saver's Credit beginning in the 2027 tax year, American workers will be able to save even more for retirement, and consolidate that extra savings as they change jobs, over the long term.

While we can reflect on how, though much has changed in retirement planning in 50 years, the commitment by the public and private sectors to helping Americans achieve a financially secure retirement has not.

Spencer Williams is CEO of Portability Services Network and Retirement Clearinghouse.