Fidelity Highlights Auto-Portability as Way to Combat Cash-Outs in Q3 Report

Fidelity Investments’ retirement report for the year’s third quarter highlighted its recent adoption of automatic portability for plan sponsors, first allowed in 2024 by the SECURE 2.0 Act of 2022.  

The feature that automatically sends workplace savings of less than $7,000 from a prior employer to a new one is designed to help prevent workers from cashing out their 401(k) savings during job changes, a common practice that results in taxes, penalties and diminished retirement funds. As of October, more than 6,000 Fidelity plans have integrated auto-portability, making it available to 2.2 million active participants in its network. 

According to Fidelity, 41% of workers cash out their 401(k) savings when switching employers. In response, Fidelity collaborated with the Retirement Clearinghouse to launch the Portability Services Network, a consortium of workplace retirement plan recordkeepers. PSN announced Tuesday it is currently operating with 15,000 retirement plans and 5 million participants part of the setup to roll over retirement savings to new employer accounts instead of sending them to a safe harbor individual retirement account, being cashed out or being left unclaimed. 

Sterling Ingui, head of next generation retirement products at Fidelity, says provisions included in SECURE 2.0 increased the maximum cash-out threshold for distributions, allowing more participants to benefit from auto-portability.  

“As a result, plan sponsors are increasingly beginning to understand the benefits of auto-portability, including increased participant satisfaction, the ability to attract and retain workers, and an expansion of their auto services suite—all at no additional cost to the plan sponsor,” Ingui said via email.  

She adds that in the long term, auto-portability can help relieve plan sponsor concerns about small and terminated accounts in their plans. Additionally, plan participants benefit from rolling money over faster to consolidate accounts and keep retirement money invested. 

“Auto-portability is really intended to benefit under-served and under-saved groups, which can include communities of color, women, lower income and younger workers,” Ingui noted.  

There is no charge for participating plan sponsors; for participating recordkeepers, the program can help assets stay within their platforms. 

Account Balances Up, Savings Rates Down 

Fidelity’s analysis also revealed growth in average 401(k) and 403(b) balances to record highs, driven by “consistent savings behaviors and positive market conditions.”  

Average 401(k) and 403(b) balances at Fidelity increased 4% in Q3 2024 from Q2. 401(k) balances hit $132,300, the highest since Fidelity started tracking; 403(b) balances hit $119,300, also the highest. 

On the flip side of that growth, total savings rates in the workplace savings plans were actually down quarter-over-quarter, with 401(k) savings rates at 14.1% among Fidelity participants in Q3, as compared with 14.2% in Q2. 403(b) savings were at 11.7% in Q3, as compared with 11.8% in Q2. 

In addition, average employee contribution amounts were up just slightly year-over-year in the third quarter among Fidelity participants, rising to $2,350 this year from $2,250 at the end of Q3 2023. Employer contributions were barely up, hitting $1,240 for the third quarter this year, as compared with $1,200 at the same time last year. 

Slightly more participants have taken 401(k) loans when looking at Q3 year-over-year. According to Fidelity, 18.7% of workers took loans in just Q3 this year, as compared with 17.6% in the same period in 2023. 

Fidelity’s Q3 data were drawn from more than 49 million IRAs and 401(k) and 403(b) accounts.