PLANSPONSOR - September - October 2023 - 10

UPFRONT
How Auto-Portability Works
T
he problem of defined contribution
plan leakage, especially among participants
with smaller balances, has been
widely documented. Automatic portability,
which fintech company Retirement
Clearinghouse defines as " the routine,
standardized, automated movement of an
inactive participant's retirement account
from a former employer's retirement plan
to [the person's] active account in a new
employer's plan, " has been promoted since
2014 as a potential solution to leakage.
The auto-portability movement
has gained momentum in the past few
years, culminating in the 2022 formation
of the Portability Services Network,
a company owned jointly by RCH and
several of the largest U.S. recordkeepers.
Spencer Williams, president and CEO of
both RCH and PSN, says PSN is meant
to serve as a utility for the retirement
industry. PSN " is not an entity seeking
profit for itself, " he explains. " We seek to
deliver auto-portability to retirement plan
10 PLANSPONSOR.COM September - October 2023
participants at the lowest possible cost. "
RCH supplies PSN with the people,
the technology and the know-how to deliver
auto-portability into the market, Williams
says. Participating recordkeepers bring
their plan sponsors to the arrangement,
and those sponsors bring the participants.
It is a networking achievement, says
Neal Ringquist, RCH chief revenue officer.
Ringquist notes that PSN has a 63% market
share of the DC marketplace based on the
six original PSN owner-members-Alight,
Empower, Fidelity Investments, Principal
Financial Group, TIAA, and Vanguard,
which plans to implement the program
starting October 1.
Coordination Required
Auto-portability sounds simple enough.
Plan participants change jobs; PSN tracks
them to their new employer and verifies
their identity; employees consent to a
balance transfer, and the funds from their
previous plan are added to their new one.
Art by Gizem Vural
From an operational and legal standpoint,
auto-portability " wraps around "
a mandatory distribution provision,
Ringquist says. " To do auto-portability on
a negative consent basis, you have to both
force small balances out of a plan on a negative
consent basis and roll those balances
into a plan on a negative consent basis. "
These transfers require coordination
among recordkeepers and sponsors plus
extensive data processing. Participating
recordkeepers must both send and receive.
That means a recordkeeper and its plan
sponsor clients agree that terminated
participants who are eligible for auto-portability
because they meet the mandatory
distribution provisions will be forced out of
the plan and their data included in PSN's
systemwide queries. Also, each recordkeeper
and sponsor must accept plan rollins
of new hires' transferred balances.
Transfers require reciprocity between
force-outs and roll-ins at the sponsor level.
For instance, a plan might currently retain
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