401(k) Portability Failure: Challenges and Solutions

Introduced in 1978, the 401(k) retirement plan faces significant challenges in keeping pace with the modern workforce. Only half of workers have access to employer-sponsored 401(k) plans, and the system struggles to accommodate the increasing mobility of employees.

Portability Failure

"Portability failure" occurs when employees have difficulty transferring their 401(k) accounts when changing employers. This can lead to abandoned or lost accounts, as evidenced by the 25% of 401(k) assets that are currently unclaimed.

Consequences of Portability Failure

* Lost assets: One in three 401(k) participants have lost track of their accounts.
* Cashouts: Employees may cash out their 401(k)s rather than transferring them, resulting in potential tax penalties and early withdrawal fees.
* Complex and costly rollovers: Rolling over 401(k)s into IRAs or other employer plans can be complex and time-consuming.

A Solution: Rollover to IRAs

Laurie Rowley, CEO of Icon Retirement Solutions, recommends rolling over 401(k) accounts into individual retirement accounts (IRAs). IRAs provide individuals with greater control over their assets, simplified investment management, and reduced fees.

Portable Retirement Plan (PRP)

Rowley's firm offers a Portable Retirement Plan (PRP) that combines the benefits of workplace retirement plans with individual IRAs. PRPs:

* Eliminate the cost and complexity for employers
* Ensure fiduciary responsibility for the individual participant
* Provide personalized investment portfolios and direct ownership of assets
* Allow for seamless transferability between employers

Benefits of PRPs

* No need for rollovers or plan changes
* Simplified investment management
* Reduced administrative burden for employers

Conclusion

The 401(k) system faces challenges with portability, leading to lost accounts and reduced retirement savings. Rolling over 401(k)s into IRAs or adopting Portable Retirement Plans can address these issues, ensuring that employees can take their retirement plans with them throughout their careers.