In Practice July 31, 2023

Vanguard Expands Retirement Clearinghouse Eligibility to IRA Account Holders

The asset manager, which has partnered with the clearinghouse on 401(k) rollovers since 2021, is turning to forgotten IRAs.

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The Vanguard Group has expanded its work with the retirement consolidation and portability firm Retirement Clearinghouse LLC for Vanguard’s individual retirement account holders, the firm said in a statement.

Vanguard is expanding a partnership it started in 2021 on 401(k) rollovers to now alert IRA account holders of forgotten or lost retirement savings.

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“We have identified a population of Vanguard IRA accountholders who may have lost track of their retirement funds, which can occur when employees change jobs,” a spokesperson wrote via email. “We are proactively engaging these IRA accountholders to reconnect them with these funds.”

Charlotte, North Carolina-based Retirement Clearinghouse started in 2014 as a solution to retirement plan leakage from lost or forgotten participant accounts. In 2022, it started the Portability Services Network with the goal of getting recordkeepers to create a shared database. Vanguard, Fidelity Investments and Alight Solutions were early participants, and Empower Retirement, TIAA and Principal Financial Group have now also joined, bringing on the nation’s largest recordkeepers.

“Retirement accounts are sometimes left behind during a career transition or when a saver mistakenly feels an account is too small to be impactful toward their retirement goals,” Vanguard wrote. “This can lead savers to miss out on value from the money they have already set aside. Consolidating these funds can make it easier to keep track of retirement savings and tap the power of long-term investment returns, ultimately putting savers on their best path to investment success.”

With the expanded partnership, Vanguard will transfer lost IRA accounts to the Retirement Clearinghouse on an “as needed basis,” with the goal of reuniting and preserving retirement assets for account holders, according to the statement.

“Retirement Clearinghouse and Vanguard share the same mission to improve the retirement outcomes of under-saved and underserved participants by reducing cash out leakage though a program of facilitated consolidation of stranded or forgotten 401(k) accounts,” Retirement Clearinghouse said in an emailed statement. “Expanding our partnership to also include forgotten IRA accounts is natural extension of that mission.”

While the expanded partnership only involves Vanguard IRA account holders only, the clearinghouse is “certainly amenable to similarly structured relationships with other mission-aligned IRA providers.”

The clearinghouse’s services include a call center providing specialized assistance designed to enable end-to-end portability and account consolidation; uncashed check services; and the capability to search for lost and missing participants.

The firm works with more than 36,000 retirement plans and has worked with more than 1.9 million plan participants with more than $29 billion in retirement savings, according to the company that is part of the The RLJ Companies and was founded by Robert L. Johnson.

Products July 31, 2023

Plan Sponsors Want More Automatic Retirement Features to Help Unengaged Participants

A TIAA survey of 80 plan sponsors points to the need for plan sponsors, advisers and providers to provide a low-cost default retirement income option.

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Plan sponsors are interested to provide employees a retirement offering that can automatically adjust for life changes, as well as market shifts, to help ensure they have enough income in retirement, according to plan provider TIAA.

In a pulse survey of 80 plan sponsors released July 20, TIAA found that plan sponsors are looking for a combination of automatic enrollment and adjustments, immediate employer vesting and lower fees. Plan sponsors also feel that participants lack education and interest in retirement plans, and plan sponsors are looking for a combination of provider and human resource focus to improve engagement.

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“The average participant doesn’t want to deal with their investments,” says Tim Pitney, TIAA’s head of lifetime income default solutions. “People spend more time on vacation than their retirement plan.”

Pitney says that lack of attention is partly why the idea of automation is going beyond just automatic enrollment into a target-date fund with a glide path. Plan sponsors, according to the survey, are looking for greater protection from market downturns such as the hit that fixed-income investment took last year.

“We saw in 2022, for the first time in 40 years, equity markets decline in conjunction with a double-digit drop in bond performance,” Pitney notes. “People that were closer to retirement that were in target-date funds really got a double whammy.”

According to the pulse survey, plan sponsors are open to guaranteed income products that could protect from such a downturn, as long as they come without “high commissions and fees/costs,” in the words of one respondent.

TIAA first introduced a custom annuitization default option in 2014 and has since added 250 institutional clients, with a forecast of reaching 350 by the end of this year.

There is still a long way to go before the majority of plan sponsors offer in-plan annuity options, despite an industry-wide push for the option.

Pitney believes the retirement income shortfall being faced by many Americans, combined with their desire for plan sponsors to help alleviate their troubles, will transform a 401(k) system into one that looks more like defined benefit pension systems of the past, without the same onus for the employer.

“If you take a step back, what you really have, and what you are trying to do, is effectively synthetically create a DB plan on a DC chassis,” he says. “Instead of a DB plan that is a financial and fiduciary responsibility for the organization, the risk and cost get shifted to the individual participant.”

The desire for automatic guidance for participants comes from plan sponsors believing that participants have a “generally poor understanding of retirement benefits,” according to TIAA’s survey. That said, sponsors are split as to where education should come from: their own human resources department or retirement plan providers.

“This is more of an internal HR issue, but we just need someone to fully ‘own’ our benefits and education of our participants,” one respondent wrote.

For his part, Pitney sees plan design as the key area in pushing toward a better retirement product. To make that happen, however, requires a “triangulation” of the client, plan adviser and provider “working together to create the best possible plan for the employer.”

“Most of the automatic decisions are going to be driven by the plan sponsor,” Pitney says. “It’s one thing if you go up to somebody and ask, ‘Do you want guaranteed income in your retirement plans?’ They will say yes. But do they have the impetus and the drive and desire to pursue what that means? There’s a push versus a pull mentality there.”

Pitney says he is adding staff to his team to continue messaging and working with clients.

“There needs to be an impetus for change,” Pitney says. “Education is always important, but harnessing that default human behavior really has more impact.”

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