The 401(k)'s Portability Problem and a Solution

The 401(k) retirement savings plan, introduced in 1978, is facing challenges due to its lack of portability and complexity. Only about 50% of workers have access to these plans through their employers, and the system struggles to accommodate today's mobile workforce.

Portability Failures

Laurie Rowley, CEO of Icon, highlights the "portability failure" of the 401(k) plan. When an employee leaves an employer with a 401(k), they often face one of four outcomes:

* Abandonment: 25% of 401(k) assets are abandoned or lost, leaving 29 million people without access to their retirement savings.
* Rollover to IRA: $800 billion has been rolled out of 401(k)s into IRAs, but this can involve fees and early withdrawal penalties.
* Rollover to New Employer's 401(k): This can be complex and not always possible.
* Cash Out: Employees may cash out their 401(k), potentially incurring taxes and penalties.

How to Address Portability

Rowley recommends rolling over 401(k) assets into an IRA to maintain control and avoid losing track of funds. Icon also offers the Portable Retirement Plan (PRP), which combines workplace and individual plan elements.

* PRP Benefits: PRP eliminates costs and fiduciary responsibility for employers, simplifies setup and management.
* Employee Benefits: PRP allows employees to keep their plan with them when they change jobs, eliminating the need for rollovers and simplifying their investments.

Conclusion

The 401(k) system's portability failures present a challenge for employees seeking to manage their retirement savings effectively. Rolling over assets to an IRA or utilizing a PRP can help address these issues and ensure that workers retain access to their retirement plans throughout their careers.