401(k) Portability Failure: A Challenge for American Workers
The 401(k), a retirement savings plan introduced in 1978, faces challenges as it struggles to adapt to today's workforce. According to Laurie Rowley, CEO of retirement solutions firm Icon, only 50% of workers have access to the plan through their employers. Additionally, the system was not designed for today's increasingly mobile workforce.
Portability Failure and Its Impact
"The portability failure of the 401(k) plan is because it was never constructed to be portable," explains Rowley. This lack of portability results in significant issues, including:
* Account abandonment: 25% of 401(k) assets are lost due to abandoned plans.
* IRA rollovers: $800 billion has been rolled out of 401(k) plans into IRAs, but this often involves high fees and complex paperwork.
* Cashing out: Some employees cash out their 401(k) plans, incurring taxes and penalties that can significantly reduce their retirement savings.
Addressing the Portability Challenge
Rowley recommends that individuals roll over their 401(k) plans into an IRA to maintain control and ensure portability. Additionally, Icon offers a solution called the Portable Retirement Plan (PRP), which combines elements of both workplace and individual plans.
Features of the Portable Retirement Plan
* Eliminates cost, complexity, and fiduciary responsibility for employers.
* Allows employees to take their plan with them when they leave their job.
* Provides personalized investment portfolios tailored to the employee's needs.
Benefits of the Portable Retirement Plan
* No need for rollovers or changes to investments when leaving a job.
* Ensures that retirement assets stay with the employee throughout their working life.
Conclusion
The 401(k) system's portability failure is a significant challenge for American workers. By understanding the problem and exploring solutions like the Portable Retirement Plan, workers can take steps to protect their retirement savings and ensure their financial security for the future.