401(k) Portability Failure: A Major Issue for Retirement Savings
The 401(k) retirement system, introduced in 1978, faces significant challenges in the modern era. Only 50% of workers have access to these plans through their employers, and the system struggles to accommodate the increasing mobility of today's workforce.
Portability Failure and Lost Retirement Accounts
According to Laurie Rowley, CEO of Icon, the lack of portability within 401(k) plans has led to:
* Abandoned Assets: 25% of 401(k) plan assets are abandoned or lost, amounting to 29 million people.
* Rollover Issues: $800 billion has been rolled out of 401(k) plans into IRAs, while only a small percentage is rolled into new employer plans.
* Cash Outs: Many employees cash out their 401(k)s, potentially incurring penalties and taxes.
Rowley emphasizes the importance of retirement accounts remaining with individuals throughout their careers:
Solutions to Portability Failure
Rollover to IRAs: Rowley recommends rolling over 401(k)s into IRAs to ensure control and monitoring of the funds.
Portable Retirement Plans (PRPs): Icon offers PRPs that combine employer contributions with individual control. Employers no longer bear the cost and fiduciary responsibility, simplifying the process.
Benefits of PRPs
* Personalized portfolios tailored to individual needs.
* Funds directly deposited into individual accounts owned by the employee.
* Seamless portability when employees leave their jobs.
* No need for rollovers or investment changes.
Rowley's solutions aim to address the portability failure of 401(k) plans, ensuring that employees have continuous access to their retirement savings regardless of job changes.