In a move to make transferring 401(k) plan assets easier when an employee changes jobs, Vanguard is introducing an automated portability service for sponsor clients and their plan participants. The service is expected to launch in mid-2022, the company said in a release.
Vanguard said it has engaged Retirement Clearinghouse, a provider of plan consolidation services, to create the solution, which will automate the movement of an employee’s 401(k) account from their former employer’s plan into an active account with their current employer’s plan.
“Together with RCH, we aim to help the most vulnerable plan participants combine their retirement assets, capture the vast benefits of a 401(k) plan, and enhance their overall financial well-being,” John James, managing director and head of Vanguard’s institutional investor group, said in the release.
Vanguard said 401(k) participants with smaller balances often fail to roll over their retirement savings into their new company’s plan or tax-advantaged vehicles after changing jobs.
When a participant leaves a job with less than $5,000 in their 401(k), employers can transfer small-balance accounts out of the plan and into a Safe Harbor IRA, where fees can be higher. Vanguard said this can result in a proliferation of stranded Safe Harbor IRAs, participant cash-outs and the forfeiture of future savings and returns.
Don’t just throw more people at the problem
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Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.