(Washington, D.C.) – Today, Senator Patty Murray (D-WA), the top Democrat on the Health, Education, Labor, and Pensions (HELP) Committee led a bicameral group of Congressional Members in sending a letter to U.S. Secretary of Labor Thomas Perez to encourage the Employee Benefits Security Administration to issue guidance on innovations to help workers retain retirement savings between jobs. When workers change jobs, many choose to cash out their retirement savings and start over with a new savings plan at their new job. Withdrawing these savings before retirement is known as “leakage,” and it could subject workers to additional taxes and have an impact on an individual’s ability to save adequately for retirement, especially among low-wage workers.
Financial companies have innovated the tools necessary to increase portability and reduce leakage by automatically transferring a worker’s 401(k) account with a balance below $5,000 from a former employer to a safe harbor IRA account. Then, once the worker has a new job, another seamless electronic transfer can be made to the worker’s new 401(k) plan. The Members noted in their letter that automating this service with negative consent – where an individual must actively opt-out – could further reduce leakage.
“[C]ashing out 401(k) accounts when an individual separates from a job has a significant and negative impact on that individual’s retirement readiness,” the Members wrote. “This small, automated action can effect a desired, positive result, and the Department should encourage such innovations to improve retirement savings and address the growing retirement crisis in this country. We encourage EBSA to work to ensure that the use of automatic portability and negative consent is prudent, and that any fees associated with such process are reasonable in its opinion.”
Read the full text of the letter here.
The Employee Benefits Research Institute estimates that reducing leakage by 50 percent would increase retirement savings by $1.3 trillion over a 10-year period. DOL’s guidance could give financial institutions and employers clarity on the use of automatic portability and negative consent in efforts to reduce leakage, eliminate lost plans, and increase retirement savings.
Joining Murray in signing this letter was Senator Ron Wyden (D-OR), Ranking Member of the Senate Finance Committee; Senator Claire McCaskill (D-MO), Ranking Member of the Senate Committee on Aging; Senator Barbara Mikulski (D-MD), Ranking Member of the Senate Committee on Appropriations, Senator Al Franken (D-MN), Senator Sheldon Whitehouse (D-RI), Senator Chris Murphy (D-CT), Senator Elizabeth Warren (D-MA), Congressman Robert C. “Bobby” Scott (D-VA), Ranking Member of the House Education and Workforce Committee, Congressman Sander Levin (D-MI), Ranking Member of the House Ways and Means Committee, and Congresswoman Alma Adams (D-NC).