Administration February 13, 2023

Empower Joins Fidelity, Vanguard and Alight in Portability Consortium

Growing recordkeeper clearinghouse will help participants with balances of $5,000 or less move accounts when they change jobs. 

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Empower Retirement is the latest recordkeeper to sign on with Portability Services Network LLC, an entity using its technology to automatically locate a participant’s retirement account in their former employer’s plan and transfer accounts under $5,000 into an active account.

Empower, the country’s second-largest 401(k) recordkeeper by assets, will join Retirement Clearinghouse LLC’s consortium of recordkeepers set up to automatically move small 401(k), 401(a), 403(b) or 457 accounts to a worker’s new provider when they change jobs. The company is majority owned by Retirement Clearinghouse.

The clearinghouse is designed to reduce cash-outs, in which employees take an immediate tax hit and often times reduce their overall retirement assets, by cashing out their plans instead of going through the rollover process. This retirement plan “leakage” tends to happen disproportionality among lower-income and minority workers, and results in tens of billions of dollars leaving retirement plans, according to industry-backed research firm EBRI.

“Advancing auto-portability adoption across the retirement system provides workers with the best chance to harness the power of all the assets they have earned through their workplace savings plans,” Empower President and CEO Edmund F. Murphy III said in a statement on Monday.

Empower joins the consortium announced in October 2022 alongside the country’s three other largest recordkeepers by assets: Fidelity Investment, Vanguard and Alight Solutions. The Greeenwood Village, Colorado-based Empower announced that it will make the service live for plan sponsor clients in the first quarter of 2025.

The consortium is the brainchild of business owner and entrepreneur Robert L. Johnson, whose Retirement Clearinghouse has been working for years with recordkeepers and policymakers to get both industry participation and regulatory approval for a national auto-portability network. With the passage of the SECURE 2.0 Act of 2022, a plan provider can now transfer a participant’s retirement savings from a previous employer to a new one, unless the participant says otherwise.

With the addition of Empower, the consortium will represent about 60 million participants and more than $5 trillion in assets, based on data published by PLANSPONSOR. The Retirement Clearinghouse currently works with more than 34,000 retirement plans and has guided 1.8 million plan participants with more than $28 billion in retirement savings, according to the Charlotte, North Carolina-based firm.

PSN is majority-owned by Retirement Clearinghouse, with the recordkeepers providing the other ownership stakes. There are still two open spots for recordkeepers to join the venture, according to the announcement.  The Retirement Clearinghouse and the recordkeeper owners will govern the network as an “industry utility” and allow all recordkeepers to connect to the network, though the providers will not receive any compensation for joining.

The system of automatic transfer between retirement plans was devised in part to mimic auto-enrollment, which has shown to be extremely effective in getting people to save within workplace retirement plans, according to Spencer Williams, who was brought on by Johnson to run the Retirement Clearinghouse and has been working closely with him on the consortium.

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“Retirement Clearinghouse brings all of the technology, the intellectual property, the know-how,” says Williams, who is president and CEO of Retirement Clearinghouse. The recordkeepers bring “that customer base in aggregate—the critical mass.”

Working Together?

Although the recordkeepers compete amongst themselves, Williams says, they are also focused on the mission to preserve retirement savings for minorities, women and low-income earners. There is also, he emphasizes, a business case for the consortium and auto-portability. One advantage is that servicing these smaller, inactive accounts carries an administrative cost. Another is the longer-term impact of cash-outs to the retirement business.

“When we stop leakage, we get more dollars in the system, and we get better customers in the system,” Williams says. “Instead of letting the $2,500 account disappear, that $2,500 becomes $5,000 in a retirement plan, and we’ve not only changed behavior from a savings mentality, but we’ve created better customers for the whole system.”

Data and Research February 13, 2023

Pre-Retirees Less Confident Their Retirement Income Will Last to Age 90

Confidence among pre-retirees that they will receive enough income from all their accumulated retirement sources to cover basic living expenses throughout retirement has dropped in four of the last five years.  

Reported by

In a new research article, LIMRA raised concerns about the ability of future retirees to cover their basic living expenses in retirement if they cannot secure more sources for lifetime-guaranteed income.

Pre-retirees—workers within 10 years of their of anticipated retirement dates—are less likely than retirees to say they will be able to cover basic living expenses in retirement with lifetime-guaranteed income sources, LIMRA research shows.

“[The pre-retiree cohort] will need to figure out proactively how to create sustainable income, with a higher likelihood of failure than what their parents are facing,” says Matt Drinkwater, corporate vice president of annuity and retirement income research at LIMRA, via email.

LIMRA data showed 70% of retiree respondents said between Social Security, traditional pensions and annuities, they expect to have sufficient lifetime-guaranteed income to cover all their basic living expenses. Workers without a traditional defined benefit pension will have to patch together their sources for guaranteed income in retirement, adds Drinkwater.

“The parents of today’s pre-retirees are the current retirees, who are, for the most part, enjoying comfortable retirements with the peace of mind provided by sufficient lifetime-guaranteed income,” he says. “The next generation to enter retirement will need to cover their expenses not with pensions, but instead by tapping their accumulated balances in [defined contribution] plans, IRAs and after-tax accounts, none of which automatically provide a lifetime-guaranteed payout.”

Overall, six out of 10 respondents were confident their savings and investments will last at least until the age of 90, LIMRA data showed.

The LIMRA data, split by retirement and employment status, revealed 12% of retirees consider themselves retired, but are also working for pay, according to a LIMRA spokesperson.

The research gauged confidence that their savings will last in retirement based on respondents’ agreement with the statement, “I am confident that my savings and investments won’t run out if I live to be 90 years old.”

Among non-retired workers:

  • 18% strongly agree, 35% somewhat agree, 23% neither agree nor disagree, 16% somewhat disagree and 8% strongly disagree.

Among retirees who are still working for pay and consider themselves retired:

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  • 31% strongly agree, 41% somewhat agree, 15% neither agree nor disagree, 9% somewhat disagree and 4% strongly disagree; and

Among all retirement investors:

  • 23% strongly agree, 37% somewhat agree, 19% neither agree nor disagree, 14% somewhat disagree and 7% strongly disagree.

Unsurprisingly, workers with more household investable assets are more confident, as 51% of consumers with $2 million or more in household investable assets are confident their savings and investments will not run out if they live to age 90, compared to only 12% of investors with $100,000 to $249,999 in assets, LIMRA found.

The research also showed the top retirement income sources expected by pre-retirees are Social Security, at 64%; DC plans, 61%; personal savings in non-qualified investments, 43%; traditional IRAs, 39%; and traditional defined benefit pensions, 27%.

Retirees’ actual retirement income sources were identified as 70% coming from Social Security, 38% from defined benefit pensions, 17% from personal savings, 15% from traditional IRAs and 8% from DC plans.

In 2022, 44% of pre-retirees said they will receive enough from all their lifetime-guaranteed sources to cover all their basic living expenses throughout retirement, compared to 58% in 2017, LIMRA found.

Greater anxiety over longevity risk—the risk of outliving ones’ assets) may drive retirement plan participants to embrace guaranteed lifetime income sources, including annuities, says retirement plan adviser David Macchia, founder and CEO of Boston-based Wealth2k.

“The dramatic decline in the percentages of people who believe they will have enough secure income sources to cover essential retirement expenses is unsurprising in the context of a broader loss of confidence in the economy among younger Americans,” Macchia says. “Economic anxieties will drive interest in annuities and will account for an increasing allocation of savings to purchase guaranteed income.”

The LIMRA article, ‘It’s No Longer Your Parents’ Retirement,’ was based on data from the study, Retirement Investors: Key Trends and Opportunities, conducted in August 2022, according to the spokesperson. LIMRA engaged an online panel to survey individuals. The survey generated 4,008 responses: 2,159 retirees and 1,849 non-retired workers.

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