PLANSPONSOR - May - June 2023 - 9

to 8.5% on average in the years after
OregonSaves started operations, in 2017.
Termination Rates in States
Pew also studied whether the creation of
state programs would encourage employers
with an existing private plan to drop it to
enroll workers in the state program.
The three states had plan termination
rates lower than the nation's overall rate
in 2021, and the changes in states with
an automated savings program appear to
follow the trend, the Pew article states.
Other states are considering sponsoring
a program. Lawmakers in North
Carolina, for one, introduced House Bill
496 to that end in the state's general
assembly in March.
Data sources for the Pew study are
Form 5500 annual reports, derived from
Form 5500 and 5500-Short Form filings,
2013 through 2021. -Noah Zuss
69%
TIDBITS
Time Spent on Money Worries
... of Millennials worry about
money, on average:
85%
1.9 hours a day =
13 hours a week, or
28 full days a year.
... of those age 45+ worry
about money, on average:
1.6 hours a day =
11 hours a week, or
24 full days a year.
56%
... with a workplace
retirement
plan wished they
received more
guidance from their
employer on how to
invest their savings.
Source: Schroders, " 2023 US Retirement Survey Retirement Readiness Report "
The 'Why?'s Behind Cash-Outs
W
hen leaving a job, many employees
cash out their 401(k) savings,
despite warnings from financial professionals
against incurring the attendant
10% IRS penalty, says research recently
published in Marketing Science and
Harvard Business Journal.
After evaluating more than 162,000
terminated employees, covered by 28 retirement
plans, researchers found that 41.4%
had cashed out their 401(k) savings at job
separation, most emptying their account,
says the report, " Cashing Out Retirement
Savings at Job Separation. "
Authors of the study John G. Lynch Jr.,
Yanwen Wang and Muxin Zhai found that
employers' choices in their defined contribution
plan's design, along with inadequate
communication, influence terminating
employees to cash out. The authors
encouraged plans to adopt automatic portability
to help participants roll over their
account balances to a new employer.
Too Much Leakage
Some employees may cash out if they
leave a job unexpectedly and need to pay
bills, but the researchers also arrived at a
psychological explanation.
As most 401(k) statements separate
an employee's contributions from
an employer's, the study argues, some
employees may view their own contributions
as " untouchable " or illiquid, yet
their employer's as a liquid windfall. This
mentality might cause an employee to,
against advice, withdraw some retirement
funds when exiting a job.
The research also found that the
more generous an employer's match, the
more likely the employee to cash out.
" Employees with a higher employer match
rate might be opportunistic and plan to
leak, " the paper says. " One might plan to
generate a pool of employer 'free' money
[to] use at job separation even after paying
taxes and penalties. "
Lack of Guidance
Lynch says sponsors and recordkeepers
may contribute to the leakage. Rather
than explaining the departing participant's
other options-rolling the savings
into an individual retirement account or
possibly a new employer's plan or leaving
it in the plan-they typically leave this job
to the recordkeeper, which may neglect to
fulfill it. " The system is not at all built for
people who are changing jobs, " he says.
He advocates for auto-portability-
the employer automatically rolling a terminating
employee's account into her new
employer's plan-and urges recordkeepers
to join the Portability Services Network;
this consortium of recordkeepers transitions
employee accounts between 401(k),
401(a), 403(b) and 457 plans, respectively.
" If the employer really cares about its
employees, it should care about them when
they're on the way out the door as well, "
Lynch says. -Remy Samuels
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