Retirement Giants Band Together to Help Job-Switchers Transfer 401(k)s

Fidelity Investments and Vanguard announced a rare collaborative effort Wednesday to help employees keep their retirement savings in tax-advantaged accounts like 401(k)s when they switch jobs.

The two retirement giants, along with benefits administrator Alight Solutions, created a jointly owned consortium to automate the transfer of millions of 401(k) balances below $5,000 when workers change employers. An estimated $92 billion is taken out of retirement savings each year due to cash-outs, according to the Employee Benefit Research Institute (EBRI).

Auto-portability of workplace retirement plans is an idea that’s been talked about for years but requires scale to make much of a difference. EBRI estimates that if auto-portability is widely adopted, it would keep an additional $1.5 trillion in retirement plans over 40 years, with Black and minority workers saving an additional $619 billion and women saving $365 billion more.

The cash-out problem is likely to worsen as people switch jobs more frequently. Workers with less than $5,000 saved tend to be lower-income, women and minorities, according to Alison Borland, executive vice president of Wealth Solutions at Alight, who said the effort “is meant to be a low-cost way to preserve savings for those who need it most.”