New auto portability solution to help under-served & under-saved

Approximately $92 billion¹ in savings leaves the U.S. retirement system annually because Americans who switch jobs prematurely cash out their low balance workplace retirement accounts and pay taxes and penalties on those cash-outs. It’s often quicker and easier to withdraw retirement funds or receive an automatic payout than going through the process of rolling over these funds to a new plan. The impact on future retirement savings can be significant as assets are no longer available to take advantage of the power of compounding interest and for tax-deferred growth.

While the impact of this cash-out crises can be felt across all demographics, it’s predominantly minorities, women, lower-income and younger employees who are affected the most.

• Fidelity’s data shows Black participants are twice, and Hispanic participants 1.5 times more likely than Asian or White participants to have a 401(k) balance below $5k when they leave their job².
• In 2021, of the 1.1M mandatory distributions processed, 55% were for participants under 35 years old³.

Help is on the way with Auto Portability
Fidelity is a leader in the formation of a consortium with other workplace retirement savings recordkeepers, Alight and Vanguard, along with Retirement Clearinghouse, LLC, to accelerate the adoption of auto portability to help America’s under-served and under-saved workers. The consortium will establish an independent entity, Portability Services Network (PSN), that will build a nationwide, digital hub connecting workplace retirement plan recordkeepers and the plan sponsors they serve with the sole purpose of mitigating cash-out leakage and preserving trillions of dollars in additional savings in the U.S. retirement system.

When a worker with less than $5,000 leaves an employer, if their previous and new workplace plans are part of the Network, PSN will automatically locate their new active workplace retirement savings account, if they have one, and transfer the assets to this account. If the participant is unable to be located, their assets will stay in an IRA while PSN continues to look for them. Plan sponsors have the choice to sign up for this service.

What’s next

We believe auto portability is a critical component in helping the under-served and under-saved achieve financial wellness. Fidelity and all current and future participating recordkeepers will not make a profit from this operation.

We anticipate additional recordkeepers will be added to the consortium and PSN will be operational early next year. Look for future updates in the Your Fidelity Connection. In the meantime, please don’t hesitate to reach out to your Fidelity Managing Director with any questions.