Retirement Clearinghouse Completes $10B+ in Retirement Account Consolidations
New Milestone Coincides with Uptick in Adoption of Solutions Enabling Portability, Helping the Underserved & Under-Saved Obtain Better Retirement Outcomes
CHARLOTTE, N.C.—July 27, 2021—Retirement Clearinghouse, LLC has consolidated more than 290,000 retirement accounts, comprising over $10 billion in assets, into existing 401(k) or IRA accounts. This milestone represents a greater-than-threefold increase in the amount of retirement account transfers completed on behalf of hardworking Americans in just six years—enabling significantly more workers to avoid unnecessary cash-outs and accumulate more savings for retirement, while improving average account balances and other metrics for plan sponsors.
“Now more than ever, our country needs to close its retirement-savings shortfall so more Americans can enjoy financial security when they retire,” said Spencer Williams, Founder, President, and CEO of Retirement Clearinghouse. “We have been privileged to lead the private sector’s efforts—underpinned by bipartisan support in Washington, D.C.—to develop solutions which make it easy for plan participants in the mobile workforce to seamlessly transfer and consolidate their 401(k) savings at the point when they change jobs. This account-consolidation milestone is a testament to the commitment of so many plan sponsors, recordkeepers, third-party service providers, and government agencies and officials to helping underserved and under-saved Americans catch up and save what they need to meet expenses and financial goals in retirement.”
Retirement Clearinghouse had consolidated more than 113,000 accounts totaling over $3 billion in assets into existing IRA or 401(k) accounts as of April 2015. More than six years later, the company’s ongoing collaboration with the private and public sectors has made it easier for more American retirement-savers to easily take their 401(k) savings with them as they move from employer to employer, and avoid making decisions which could decrease their income in retirement.
Recognizing the Problem
According to the Employee Benefit Research Institute (EBRI), $92 billion leaves the U.S. retirement system—and the vast majority of this leakage is due to job-changing participants prematurely cashing out their 401(k) savings accounts, and paying related taxes and penalties, when they switch employers. The lack of a seamless process for transporting and consolidating 401(k) savings accounts has made leaving them behind in former-employer plans, or cashing them out, the easiest options for participants when they go to new jobs. Neither choice is ideal, but cashing out is particularly destructive.
Retirement Clearinghouse’s research has found that a hypothetical 30-year-old participant who cashes out a 401(k) account with $5,000 today would forfeit up to $52,000 in earnings they would have accumulated by age 65, assuming the account would have grown by 7% per year. EBRI estimates 14.8 million participants switch jobs every year, and data from the largest plan recordkeepers indicates that nearly one-third (31%) of these participants will prematurely cash out their 401(k) savings accounts within one year of arriving at another employer. Cash-out rates within a year of job-change are higher among workers who are between ages 20 and 29 (44%), earn $20,000 to $30,000 in annual income (50%), and belong to minority communities (63% for Black Americans and 57% for Latinos).
Furthermore, the adoption of auto enrollment by plan sponsors, under the Pension Protection Act of 2006, has also led to the present surge in small accounts in defined contribution plans. EBRI reported that 41.8% of plan participants in the EBRI/Investment Company Institute (ICI) 401(k) database had under $10,000 in their 401(k) savings accounts at year-end 2018—the database’s highest percentage of participants with under $10,000 in their 401(k) accounts since year-end 2008, during the financial crisis.
Designing the Solution & Building Momentum for Nationwide Adoption
A consolidation saves participants time and redundant account expenses, simplifies retirement planning, and greatly reduces the odds of a cash-out, or having a stale address associated with a retirement account left behind at a previous employer. Retirement Clearinghouse has worked with partners in the private and public spheres to resolve the vicious circle caused by high workforce mobility, lack of seamless plan-to-plan asset portability, and auto enrollment by offering solutions that facilitate account consolidation. One technology-based solution that the company introduced is auto portability—the routine, standardized, and automated movement of a worker’s 401(k) savings account from their former employer’s plan to an active account in their current employer’s plan.
Retirement Clearinghouse completed the first-ever fully automated, end-to-end transfer of retirement savings from a safe-harbor IRA into a participant’s active account in July 2017, on behalf of a large plan sponsor in the health services industry. Four years later, more than 2,000 participants with 401(k) accounts in former employers’ plans have consented to utilize the service to transfer their savings into active accounts in their current employers’ plans.
Further progress toward fully automated transfers was made in July 2019 and November 2018, when the U.S. Department of Labor issued regulatory guidance which removed obstacles to enabling sponsors and recordkeepers from adopting the technology powering auto portability. Last year, Alight Solutions announced it would offer auto portability to its client base of 185 defined contribution plan sponsors serving nearly 5 million employees.
This momentum is crucial. According to EBRI, approximately $2 trillion in additional retirement savings would be preserved in the U.S. retirement system over a 40-year period if all retirement savers had access to auto portability. This extra savings would include an estimated $191 billion for about 21 million Black Americans, and $619 billion for all minority workers.
“With every 401(k) account consolidation facilitated by Retirement Clearinghouse, we are doing our part to give Americans—especially those who are traditionally underserved by the retirement services industry, and therefore save less than they should—a fighting chance to retire with greater financial security,” said Renée Wilder Guerin, Executive Vice President of Public Policy at Retirement Clearinghouse. “We are proud to continue advancing auto portability and other solutions which can improve the lives of millions of Americans over the long term.”
To learn more about auto portability, please visit https://www.rch1.com/auto-portability.
About Retirement Clearinghouse
Retirement Clearinghouse, LLC is the leading provider of portability and consolidation services for defined contribution plans, acting as a trusted, unbiased intermediary between plan sponsors, participants, recordkeepers 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 metrics, and enable participants, regardless of account balance, to seamlessly transport their retirement savings through every phase of their careers.
Retirement Clearinghouse’s portability solutions have been proven to cut cash-outs by over 50% and significantly increase average account balances. The firm’s portability solutions include a domestic call center providing specialized assistance designed to enable end-to-end portability and account consolidation; uncashed check services; and the capability to search for lost and missing participants.
Retirement Clearinghouse (RCH) remains the only independent provider that defines its primary 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, N.C.-based Retirement Clearinghouse works with more than 30,000 retirement plans and has helped guide over 1.6 million plan participants with more than $24 billion in retirement savings. Retirement Clearinghouse is a portfolio company of The RLJ Companies, founded by Robert L. Johnson. For more information, please visit www.rch1.com.
Media Contact: Victoria Castelbuono
JConnelly for Retirement Clearinghouse
(973) 590-9314
rch@jconnelly.com