Senator Scott Calls for Greater Retirement Security
Washington, D.C. – Over the past four decades, Americans have cumulatively lost about $2 trillion in retirement savings due to not transferring their 401(k) retirement accounts when transitioning from one job to another. To help address this problem, U.S. Senator Tim Scott (R-SC) led a letter to Department of Labor Secretary Alexander Acosta, requesting the Department clear the path for implementation of 401(k) auto portability that would make it easier for Americans to save for their future.
On average, approximately 14 million Americans change jobs each year, and about 40% of those individuals opt to “cash out” their 401(k)s instead of transferring those funds to another retirement account. These “cash outs” incur penalties and taxes, which ultimately lead to a $70 billion annual loss in savings. The highest “cash out” rate occurs with workers with the smallest account balances, $5,000 or less.
The letter specifically states, “Retirement plan cash out leakage at the time of a job change is harmful to workers’ retirement… With an estimated 14 million workers with 401(k) plans changing jobs each year, reducing leakage and consolidating low-dollar accounts through greater use of auto portability will set millions of working Americans on a better path to a secure retirement.”
The auto portability option suggested by Scott could result in more than two million employees opting to keep their savings in retirement accounts instead of “cashing out” and incurring losses that carry long term consequences.
Various groups have already come out in support of this commonsense initiative, including the U.S. Chamber of Commerce, Insured Retirement Institute,Financial Services Roundtable, American Benefits Council, American Retirement Association, Investment Company Institute, and the Securities Industry and Financial Markets Association.
Additional signatories of the letter include Senators Steve Daines (R-MT), Mike Crapo (R-ID), Pat Roberts (R-KS), Mike Rounds (R-SD), Thom Tillis (R-NC), Tom Cotton (R-AK), Susan Collins (R-ME), Todd Young (R-IN), Bill Cassidy (R-LA), and David Perdue(R-GA).
You can view the full text of the letter here.