Vanguard to Add Auto-Rollover Service for 401(k) Accounts

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.

“Together with RCH, we aim to help the most vulnerable plan participants combine their retirement assets, capture the vast benefits of a 401(k) plan, and enhance their overall financial wellbeing,” said John James, managing director and head of Vanguard Institutional Investor Group, in a statement.

To reduce participant cash-outs or abandoned savings, 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.

“By working with us to expand the nationwide electronic network connecting employer-sponsored plans, Vanguard is helping simplify the 401(k) rollover process and giving more Americans the opportunity to strengthen their outcomes in retirement,” said Spencer William, founder, president and CEO of Retirement Clearinghouse.

Younger Workers Job Hop

This service also should aid younger workers who, research has shown, change jobs more frequently than older ones. A recent study of Bureau of Labor statistics data by Skynova found that younger workers spend less time at their jobs; for example, those 25 to 34 years old spend an average of 2.8 years in a position while 18- to 24-year-olds average between eight months and 1.3 years in the same job.

Both men and women were staying in their positions for less time than a decade ago, the findings showed. Trends vary across industries, but both millennials and Gen Xers tended toward shorter job tenures than baby boomers.