Recordkeepers Are the Key to PSN Auto-Portability

Spencer Williams

The Portability Services Network has achieved remarkable success in its first year of operations, with more than 15,000 plan sponsors—representing more than 4 million active participants—adopting PSN automatic portability.

This milestone is not just a statistic. PSN represents the culmination of years-long efforts and considerable resource expenditure by the recordkeeper-led consortium to address the challenges faced by job changers with small retirement account balances, ensuring that these individuals preserve, consolidate and incubate their hard-earned retirement savings when they change jobs. Consortium members include Alight Solutions, Vanguard, Fidelity, Empower, TIAA and Principal Financial, representing an estimated 63% of all defined contribution participants.

Recordkeepers and employers are the stewards of the private retirement system. It is incumbent on us to work together to grow the auto-portability network to improve the private system by addressing the long-standing issue of cashed-out retirement savings on behalf of those experiencing job transitions or who have low account balances.

Given PSN’s success, many varied entities (such as consultants, advisers, third-party administrators, etc.) in the retirement industry have sought to learn more about how PSN operates and, perhaps more importantly, why it operates as it does:

Plan Sponsor Adoption via PSN Recordkeepers

Auto-portability requires formal adoption by the plan. Consequently, the success of auto-portability is highly dependent on a critical mass of plan sponsor adoption. In the institutional defined contribution system, recordkeepers are the primary provider of the day-to-day services necessary to administer plans, and in this extensive role, they have a unique contractual and operational relationship with plan sponsors. Auto-portability is dependent on recordkeepers to achieve the critical mass necessary for its success.

Reciprocity

PSN’s success can be attributed to a deep-rooted alignment on shared principles that prioritize collaboration over competition. This alignment among diverse—and, more often than not, competitive—stakeholders has fostered an environment in which industry rivals unite for the common good.

Central to this effort is an operating framework, underpinned by detailed and extensive contractual obligations, that emphasizes reciprocity—the equal treatment of all participating recordkeepers and their plan sponsors, to realize mutual benefits—throughout the entire process. This framework allows for the seamless transfer of retirement account balances both to and from every plan sponsor through negative consent, ensuring that participants can move their funds without unnecessary barriers or complications.

According to the “rules of reciprocity,” every recordkeeper—and, by extension, every participating plan—must act in as both a sending and receiving recordkeeper/plan. This mutual participation ensures two-way, balanced and reciprocal flows—the key to auto-portability’s effectiveness. The reciprocity is critical to the system’s integrity and its ability to operate efficiently under the legal and regulatory framework prescribed by Congress in the SECURE 2.0 Act of 2022.

Regulatory Compliance

As a qualified auto-portability provider, PSN also ensures that each auto-portability transaction fully complies with the detailed and exacting provisions of the legislative exemption codified in Secure 2.0.

One little-understood element of these responsibilities falls on Retirement Clearinghouse as the named fiduciary for all PSN auto-portability negative consent transactions. One of these provisions subjects PSN and RCH to a fiduciary audit, which, in turn, is provided to the Department of Labor on an annual basis.

Cybersecurity

PSN auto-portability relies on the frequent and secure transmission of large amounts of plan sponsor and participant data. PSN and its recordkeeper members work together to ensure that all data exchange meets the highest possible standards.

These standards are contractually obligated and observed for adherence through all aspects of PSN’s operations. As the central party to the network, recordkeepers are best positioned to both maintain the current standards and meet new and emerging cybersecurity standards.

Accountability

Without accountability, the rules of reciprocity would be meaningless. To ensure that all recordkeepers are equal partners in auto-portability, PSN built a comprehensive and detailed reporting system able to identify anomalies and unanticipated variances in data flows and transaction results, ensuring that sending plans are also receiving balances for their employees from prior terminated accounts.

Reports are available to all participating recordkeepers in near real-time, and PSN acts as the “air traffic controller” for the network, utilizing the tools of reporting and transparency to ensure peace of mind for the equal beneficiaries in the network. The approach is, to quote former President Ronald Reagan, “trust but verify.”

Looking Ahead

PSN’s achievements in promoting auto-portability highlight the importance of collaboration, a solid regulatory and operating framework, and reciprocity among recordkeepers and plans.

With the operating foundation firmly in place, PSN continues to strongly encourage all defined contribution recordkeepers to join the network and offer auto-portability to their clients. Auto-portability is open to all recordkeepers and plan sponsors

As articulated above, PSN auto-portability is a balanced, complex, integrated and interdependent system. Each element of the system is finely tuned—and refined as needed—to achieve a harmonious and efficacious outcome: the preservation and consolidation of small participant accounts, enabling incubation and growth that benefits America’s chronically under-saved workers and is available to every plan sponsor through its recordkeeper.

Spencer Williams is the president and CEO of the Portability Services Network LLC and the founder, president and CEO of the Retirement Clearinghouse.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.