An automatic portability feature can help nudge participants to retain retirement assets when moving to a new employer. Keeping retirement assets intact, particularly early on, can be a significant driver of long-term retirement readiness, since assets kept in a plan can grow over the years. “A young employee with a $1,000 retirement plan balance may feel that it is simpler to cash out and pocket those funds,” said Jeff Clark, author of How America Saves 2022 and a member of the Vanguard Strategic Retirement Consulting team. “Having a portability provision makes it easier to move and preserve those balances, which can help employees’ long-term savings rates.”
Vanguard, through our work with Retirement Clearinghouse, plans to introduce an automatic portability option. The feature can also help plan sponsors simplify small-balance 401(k) rollovers—another way to enhance employees’ retirement readiness and their potential for long-term investment success.
In addition, today’s plan sponsors may be well served by planning for the inevitability of an increasingly mobile workforce. To do so, they might consider new design strategies to attract workers and adopt plan elements that ensure a continual cycle of smart saving and investing—even through job changes.
For example, a low default savings rate with a built-in automatic escalation feature may be a good starting point. But a starting point is just that—and today’s changing work landscape means that workers may find themselves starting again and again. “Let’s say employees are now switching jobs every two to three years,” said Clark. “If those participants are getting redefaulted to a 3% contribution rate after each job switch, they may find themselves in a cycle of undersaving.”
Vanguard found that after 10 years, employees defaulted at a 6% savings rate every three years have accumulated balances almost 70% greater than those accumulated by employees defaulted at 3%.