Job transitions are a common aspect of professional life, but they have a downside: retirement savings leakage. For many employees, their small balance accounts in their former employer's retirement plans often go unnoticed or get cashed out, often leaving workers with diminished retirement savings.

This practice is costly, leading to a reduction in the financial security of millions of America's workforce. However, efforts are being made to preserve retirement assets during job changes and significantly improve retirement security.

The Risk of Cashing Out and Lost Savings

For starters, employees who cash out their small balance accounts face both taxes and an early withdrawal penalty of 10%. These financial penalties reduce the amount employees receive, ultimately shrinking their savings.

Even more damaging is the missed growth opportunity. Retirement accounts are designed to grow over time through compound interest, helping build a secure retirement. By cashing out, employees forfeit this crucial advantage, potentially leaving them with much less than they could have had by keeping their money in a qualified employer plan.

In addition to losing growth, cashing out also diminishes retirement security. Without consolidating old accounts into a new employer’s plan, employees risk having insufficient retirement assets in the future. This can result in a lower standard of living in retirement, as the savings accumulated throughout their working career may not be enough to cover future expenses.

Another risk is the disappearance of accounts. Employees who leave old retirement accounts behind without transferring them to a new employer's plan or consolidating into a safe harbor IRA risk forgetting about these accounts. Over time, these orphaned accounts can be difficult to track down, leading to lost retirement savings.

The Power of Auto Portability

With the introduction of auto portability provisions in 2024 under SECURE 2.0, retirement plan balances will now automatically transfer to a participant’s new employer's plan when participants change jobs. Auto portability helps employees consolidate their retirement savings and keep their funds invested for the future. [Vanguard's Guide] to SECURE 2.0 highlights this key benefit, emphasizing the importance of preventing unnecessary cash-outs.

Auto portability transfers small balance accounts into the qualified employer plan system, reducing retirement savings leakage. This is a common issue when employees withdraw their funds out of confusion or lack of awareness.

By using technology, auto portability connects financial institutions, retirement clearinghouses, and major recordkeepers, making the transfer of retirement assets smooth and efficient. Overall, this solution enhances retirement security by consolidating smaller funds into a single active account, promoting long-term financial stability.

Simplifying Transfers for Employers and Employees

With Manifest, employees can easily manage and consolidate their retirement accounts, ensuring their savings stay intact when changing jobs, regardless of the balance. Manifest works within the existing infrastructure of the defined contribution system, simply adding onto employer plans no matter who the organization’s provider is.

Benefits for Employees:

  • Keep savings intact: A quick, digital transfer tool ensures that retirement funds easily migrate to a new employer’s plan, protecting savings during job transitions and reducing the likelihood of cashing out accounts. This keeps participants' retirement savings invested and growing, helping them build up a balance for retirement.
  • Simple, fast transfers: The typical multi-hour, 60-day process of transferring retirement funds can now be completed in under 10 minutes with Manifest. By reducing the effort involved, participants are more likely to transfer their funds, avoiding the risks associated with mandatory distribution provisions and early withdrawal penalties.
  • Informed decision making: Manifest’s platform guides plan participants through clear options for consolidating their retirement funds, helping them make well-informed choices that benefit their long-term retirement goals. The system automatically connects data flows to ensure accuracy and efficiency, providing peace of mind that funds are being moved to a suitable plan.

Benefits for Employers:

  • Easy integration: Employers can integrate Manifest’s transfer solution into their employer sponsored plan quickly, with no complex infrastructure changes. In less than an hour, employers can offer employees a seamless retirement account transfer process, empowering teams with a simple tool for consolidating their accounts.
  • Reduce administrative burden: By automating the process of account transfers, Manifest reduces the workload of HR teams. Employers no longer need to field questions or deal with paperwork associated with retirement account rollovers. This frees up resources, allowing employers to focus on other priorities.
  • Lower costs: By reducing cash-outs and inactive accounts, employers can reduce the administrative costs associated with maintaining multiple accounts. Manifest’s solution helps minimize the number of inactive accounts that can incur fees, and by consolidating funds into one plan, employers can optimize required notices and other regulatory compliance measures.
  • Increase employee engagement: Offering 401(k) consolidation as a benefit enhances an employer’s retirement plan, increasing employee engagement and contributing to overall employee satisfaction. Manifest’s platform guides users through 25+ security checks, letting users know their savings are safe and sound en route to their destination.

The Path to a Secure Retirement

While millions of Americans rely on their 401(k)s for retirement, there is still a lot of work to be done to improve the way we bring them from one job to the next. Manifest simplifies the process of moving retirement savings from a former retirement plan to a new employer’s 401(k), regardless of the balance, helping participants and teams maximize savings with minimal effort.

Contact Manifest today to schedule a demo and learn how our platform streamlines transfers process and protects your employees' 401(k)s.