401(k) Plan Portability Challenges and Solutions

The 401(k) retirement savings system has faced significant challenges due to its age and design limitations. Despite being introduced in 1978, it struggles to address the needs of today's mobile workforce.

Portability Failure: A Major Issue

According to Laurie Rowley, co-founder of retirement solutions firm Icon, the 401(k) system has a "portability failure" because it was not originally designed to facilitate easy plan transfers. This issue has led to:

* Low access: Only 50% of workers have access to 401(k) plans through their employers.
* Lost accounts: 25% of 401(k) assets are abandoned or lost, affecting 29 million individuals.

Consequences of Portability Failure

When employees leave employers with 401(k) plans, they often face the following options:

* Abandon their plan: Leaving 401(k) assets behind can result in lost savings.
* Roll over to an IRA: This is a common option, with $800 billion transferred out of 401(k) plans into IRAs.
* Roll over to a new employer's 401(k) plan: Can be challenging, as employer plans may have different requirements.
* Cash out: Employees may withdraw their 401(k) balance, leading to potential tax penalties and lost retirement savings.

Address Portability Challenges

Rowley recommends that retirement account owners consolidate their 401(k) assets into an individual retirement account (IRA). This provides greater control and portability, ensuring that plans remain with individuals throughout their careers.

Portable Retirement Plan (PRP)

Icon offers the Portable Retirement Plan (PRP) as an alternative. PRP combines features of workplace retirement plans and individual plans, empowering employees to save through payroll deductions while eliminating administrative burdens for employers.

Key features of the PRP include:

* Fiduciary responsibility assumed by Icon.
* Personalized investment portfolios tailored to individual needs.
* Seamless plan transferability between employers, eliminating the need for rollovers.

By adopting a PRP or consolidating 401(k) assets into an IRA, retirement account owners can overcome the portability challenges of the 401(k) system and ensure that their savings remain accessible and secure throughout their working lives.