Making it simpler for workers to move money between retirement plans when they change jobs would mend gaping rifts in the retirement savings system that are costly to all parties involved.
The current system is needlessly Byzantine and it does not just impact employees who have their money fall into its cracks. Plan sponsors face increased costs, plan providers lose revenue and policy makers become pressured to consider regulatory patches in an effort to fix breakdowns and address short-comings.
Boston Research Group (BRG) recently published a whitepaper titled: “Eliminating Friction and Leaks in America’s Defined Contribution System” based on a case study of one of the nation’s largest health care providers with more than 200,000 employees and 25 percent annual turnover rate. The company instituted an innovative account consolidation program from 2007-2012 that BRG documented.
The case study and the company’s implementation of an account consolidation program were addressed at a felicitous time. We are living in an age where workers’ unpreparedness for retirement is oft-documented and the devastating impacts that it wreaks on individuals and the economy as a whole is almost covered daily in the news. Offering up any tactic to stop employees from leaving money on the table will pay big dividends.
The “Company Man” was at one point a common occurrence in this country. You started a job out of college or high school and worked your way up over the years. Now, American workers change jobs an average of 7.4 times during a 40-year career, according to the Employee Benefits Research Institute (EBRI). At theses various points of change is where the defined contribution (DC) system fails the employees by not safeguarding them from cashing out and not providing an efficient means for them to manage their retirement savings.