Fidelity, Vanguard and Others Team Up to Fight 401(k) Cash-Outs

Through the consortium, workers who change employers can have their workplace retirement savings automatically move to their new retirement plans. According to the firms, automating the process of moving 401(k), 401(a), 403(b) and 457 account balances from plan to plan when workers change jobs will help mitigate cash-out leakage and preserve trillions of dollars in savings in the U.S. retirement system, particularly benefiting minorities, women and low-income workers.

Robert Johnson, founder and chairman of the RLJ Companies and chairman of Retirement Clearinghouse, calls the collaboration a “truly historic moment” for the retirement planning industry. He notes that the need for auto portability has been driven by the lack of seamless plan-to-plan savings portability amid a highly mobile workforce.

According to data from the Employee Benefit Research Institute, approximately $92 billion in savings leaves the U.S. retirement system every year because Americans who switch jobs prematurely cash out their workplace retirement accounts and pay taxes and penalties on those cash-outs.