What You Need to Know
- The RCH Auto Portability program allows for an account balance, no matter how small, to automatically be moved into the next job’s retirement plan.
- Workers of color with smaller accounts are most susceptible to leaving behind savings accounts when changing jobs.
- The service also should help younger generations who tend to change jobs frequently.
Vanguard has joined forces with Retirement Clearinghouse to provide an auto-portability service that allows 401(k) participants to have their defined contribution plans automatically roll over when changing jobs.
The service will be available to 401(k) sponsor clients and participants in mid-2022, noted the $8.1 trillion investment management company in a statement.
The importance of transferring 401(k) accounts has increased as more workers are part of a defined contribution plan, Vanguard noted. Its research found that at the end of 2020, 62% of all Vanguard participants were solely invested in an automatic investment program, like a target date or managed fund, compared with 33% at the end of 2011. They also found that participants who have smaller balances often don’t roll over their retirement savings.
For employees who have less than $5,000 in their 401(k), employers can roll those balances into a “Safe Harbor IRA,” where fees can be higher, Vanguard states, and these accounts are often abandoned.
This type of forfeiture especially affects minorities, said Robert L. Johnson, founder and chairman of the RLJ Cos., parent of RCH.