Whether you are laid off, furloughed or changing jobs, it’s important to carefully consider what to do with the money you have stashed away in your 401(k). Surprisingly, if the savings are minimal, many people forget about it or simply cash it out. This could lead to missed opportunities for building up a healthy retirement nest egg.
Now a new feature will soon encourage workers to hang on to those smaller sums. Called auto portability, it lets you move your 401(k) account from your old job to a new employer’s 401(k) plan — automatically.
Researchers at the Employee Benefit Research Institute say using technology to enable auto portability of 401(k) plans could keep as much as $2 trillion in the U.S. retirement system.
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Retirement Clearinghouse, which developed the auto portability feature, and Alight Solutions announced Tuesday that Alight will be the first 401(k) plan provider to adopt auto portability, with 185 companies and about 5 million employees able to have access to this feature by the end of the year.
This changes what happens to your 401(k), even if you do nothing. “Today if the worker does nothing, they either get a check with taxes and penalties withheld or the money goes into a safe harbor IRA — this is for balances of less than $5,000. There, it’s invested in money market or stable value funds,” Alight Solutions executive vice president Alison Borland said on CNBC’s “Squawk Box” Tuesday.
“What happens in the new world with auto portability if the worker does nothing, when they find a new job, the 401(k) automatically follows them. They don’t have to take any action,” Borland said.
“If people know that they have an alternative to cash out, they know their 401(k) will follow them when they move from job to job, believe it or not, that human behavior says, ‘Let me think about it,'” RLJ Companies’ founder Bob Johnson told CNBC. He is a majority stakeholder in Retirement Clearinghouse.
Fidelity and Vanguard, the nation’s largest 401(k) plan providers, are not yet offering auto portability for their 401(k) plans, and most employers have not adopted this feature.
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