On Earth Day, Consider Auto Portability to ‘Recycle’ 401(k) Savings

By Tom Hawkins | April 14th 2025

April 22 marks the 55th Earth Day, a time to reflect on our relationship with the environment and the progress made in reducing waste through recycling. While society has made strides in curbing physical waste, a similar problem persists in the U.S. retirement system: the inefficient handling of 401(k) accounts when employees change jobs.

The Problem: High Mobility, Plus Limited Portability
The American workforce is highly mobile, with the average worker holding nearly 10 jobs over a career. This mobility, combined with a lack of plan-to-plan portability for job-changing savers, has led to a proliferation of cashed-out balances and abandoned 401(k) accounts, particularly for those with smaller balances.

According to the Employee Benefit Research Institute, $92 billion leaks out of the U.S. retirement system annually, primarily due to job changes. When former employees have small balances in their 401(k) accounts, plan sponsors are allowed to automatically transfer these funds into safe harbor IRAs. The SECURE 2.0 Act recently increased the threshold for these automatic rollovers from $5,000 to $7,000.

However, data shows that accounts eligible to be forced out into safe harbor IRAs are often cashed out at much higher rates—about 55% within a year—compared to 31% for all 401(k) accounts. Safe harbor IRAs typically invest in low-yield, principal-protected products and often charge fees that can erode the account balance over time, especially for small accounts. This process not only diminishes individual retirement savings but also contributes to a broader "landfill" of small-balance retirement assets.

A Sustainable Solution: Auto Portability
Auto portability offers a way to "recycle" these stranded 401(k) accounts. This process automatically transfers small balances (now up to $7,000) from a former employer’s plan to an active account in a new employer’s plan when a worker changes jobs. Developed by Retirement Clearinghouse (RCH) and supported by both private and public sectors, auto portability is designed to work within the existing retirement plan infrastructure, making it easier for employees to keep their savings intact as they move between jobs.

The launch of the Portability Services Network (PSN) in late 2023 marked a significant step forward. PSN, a consortium of major recordkeepers, embraced a goal of widespread adoption of auto portability. In its first year, PSN announced that over 15,000 plans covering 5 million participants have adopted the service. At the end of first quarter 2025, plans adopted climbed to over 18,400.

If auto portability becomes the standard nationwide, research indicates that it could reduce cash-out leakage by $355 billion over 40 years and preserve an additional $1.6 trillion in retirement savings—including $216 billion for 30 million Black Americans.

A More Secure Financial Future
Just as recycling programs have helped reduce environmental waste, auto portability can help address the problem of wasted retirement savings. By making it easier to consolidate 401(k) accounts, auto portability ensures that more Americans can build and maintain their retirement security, rather than seeing their savings eroded in low-yield, fee-heavy safe harbor IRAs. This Earth Day, consider how auto portability can help "recycle" retirement savings for a more secure financial future.