{"id":9742,"date":"2023-02-13T07:47:56","date_gmt":"2023-02-13T11:47:56","guid":{"rendered":"https:\/\/kerryhannon.com\/?p=9742"},"modified":"2023-02-13T07:47:56","modified_gmt":"2023-02-13T11:47:56","slug":"efforts-to-make-it-easier-to-stay-invested-in-401-k-when-switching-jobs","status":"publish","type":"post","link":"https:\/\/kerryhannon.com\/?p=9742","title":{"rendered":"Efforts to make it easier to stay invested in 401 (k) when switching jobs"},"content":{"rendered":"
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\u00a0A provision in President Biden’s new legislation aims to keep workers from cashing out their 401(k) when they move from one job to another, building on a similar effort launched last year by the private sector.<\/span><\/div>\n<\/header>\n
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The\u00a0legislation<\/a>\u00a0paves the way for employer retirement plans to provide automatic portability services, so funds can be transferred seamlessly into a new employer plan unless the worker opts out. It also increases the limit for automatic rollovers from $5,000 to $7,000. That follows a new consortium launched in October by leaders in the 401(k) retirement field with the goal of automating retirement plan rollovers.<\/p>\n

Read on Yahoo Finance<\/a><\/strong><\/p>\n

Liquidating funds before a certain age is costly with penalties and taxes and can rob vulnerable workers the chance to generate meaningful savings for retirement. But some critics say the moves may be too narrow and don’t fully address why people cash out early.<\/p>\n

Discouraging cash-outs<\/strong><\/h2>\n

Before the legislation was signed in December, a collaboration of Vanguard, Fidelity Investments, Alight Solutions, and the Retirement Clearinghouse created the Portability Services Network, a nationwide, digital exchange that will automate the process for their sponsor clients and their participants to move 401(k), 401(a), 403(b), and 457 account balances from plan to plan when employees change jobs.\u00a0<\/strong><\/p>\n

The consortium \u2014 expected to go live by the end of March \u2014 currently represents around 43.8 million workers across more than 48,000 employer-sponsored retirement plans, based on data published by Pensions & Investments. This new law will help take that to a higher level.<\/p>\n

“The legislation has a major, positive impact on the consortium and auto portability,” Neal Ringquist, executive vice president at Retirement Clearinghouse, told Yahoo Finance. “This should increase the number of auto portability transactions by 20% when the new law takes effect, ultimately allowing the consortium to reduce the one-time auto portability transaction fee charged to the participant.”<\/p>\n

The one-time transaction fees charged to the participant are currently $30 for balances over $600, 5% of account balances for balances between $50 and $599, and no charge for balances under $50.<\/p>\n

To make a significant impact for future retirees, the practice needs to go big. And the new law’s provision should provide that oomph.<\/p>\n

\u201cAuto portability\u2019s success depends on scale and the participation of as many of the industry\u2019s record-keepers as possible,\u201d Kevin Barry, president of Fidelity\u2019s workplace investing division, told Yahoo Finance. \u201cWe encourage all record-keepers to join the network to deliver the benefits of auto portability to their plan sponsor clients and plan participants.\u201d<\/p>\n

Who cashes out?<\/strong><\/h2>\n

This is why this new law’s provision is critical. In 2021, Fidelity processed 1.1 million mandatory cash-outs for its sponsor clients. Of the 1.1 million, 66% were under $1,000 and sent as checks. And 55% of the 1.1 million were under the age of 35.<\/p>\n

One in 3 workers cash out their retirement accounts when leaving jobs, according to research provided by the\u00a0Women\u2019s Institute for Secure Retirement<\/a>\u00a0(WISER). For workers between the ages of 20 and 30, that pops up to 41% or higher, Cindy Hounsell, president, and founder of WISER, told Yahoo Finance.<\/p>\n

Job-changing opens the door to take out the money.<\/p>\n

Retirement plan leakages primarily come from job separations, followed by home purchases, divorces, large medical expenses, and new college tuition bills, according to an\u00a0analysis\u00a0<\/a>published in the National Tax Journal.<\/p>\n