Auto-Portability Would Help Reduce the Retirement Deficit Significantly

In June, the Employee Benefit Research Institute (EBRI) issued a report saying that if the Automatic Retirement Plan Act of 2017 were passed, it would reduce the $4.13 trillion retirement savings shortfall for U.S. households headed by those between the ages of 35 and 63 by $645 billion, or 15.6%.

The act would require all but the smallest employers to offer a retirement plan to all employees age 21 and older. It would automatically enroll participants at a 6% deferral rate and conduct reenrollments every three years. It would also include automatic escalation of 1% every year up to a 10% cap.

EBRI has now considered how auto-portability of retirement plans from one company to another would eliminate cashouts, which are particularly common for plans with low balances. If this were combined with the Automatic Retirement Plan Act of 2017, it would reduce the retirement savings shortfall by an additional $287 billion for a total reduction of $932 billion, or 22.6% of the total deficit.

“In other words, the analysis shows that while policy to expand retirement plan coverage can significantly impact aggregate savings shortfalls, initiatives to reduce plan leakage can materially augment such efforts,” EBRI says.