‘Lost and found’ 401(k) bill is good for the advice industry

Lawmakers have proposed measures to simplify 401(k) plans for years — everything from promoting simpler fee disclosures to the nationalization of retirement accounts — to help Americans more efficiently save for retirement.

Legislation proposed by Sen. Elizabeth Warren, D-Mass., would establish a retirement account “lost and found” system that would help workers keep track of their savings in plans sponsored by former employers, as Emile Hallez reports on page 16. The bill requires the Treasury Department to create an online depository that would let retirement savers locate all of their former employer-sponsored accounts with the click of a button in an online database. “No more lost accounts — ever,” the bill reads. 

While not exactly novel, the legislation is a sound first step toward getting Main Street investors the tools they need to navigate notoriously complex defined-contribution plan networks and ultimately retire comfortably in their golden years.  

The proposed registry would have almost immediate effects on retirement outlooks.

An estimated 30% of people have left account balances in plans sponsored by former employers, according to data from TIAA that was cited by Warren’s office. With changing employment trends that are skewing toward shorter tenures at jobs than ever before, the percentage of orphaned retirement accounts is only likely to increase. Already, the amount of unclaimed assets that can be escheated to states is staggering, estimated at $100 billion, according to data from the Government Accountability Office cited in a summary of the bill. 

The holy grail is the idea of “auto-portability,” a system that automatically reconnects plan participants with 401(k) savings they’ve inadvertently left behind or forgotten about after switching jobs. This proposal is a step in that direction. While the bipartisan bill will have its detractors, the lost-and-found registry would be populated with data companies are already obligated to report — helping to curtail any undue burdens placed on plan sponsors or record keepers.  

Unfortunately, this isn’t the first time the legislation has been floated by lawmakers. In fact, it’s at least the third time since 2016 that Warren’s office and others have introduced similar bills only to have them thwarted in Congress. With the unprecedented economic disruption caused by COVID-19 combined with political unrest in the wake of fatal police encounters, some experts believe other pressing social concerns could take precedence. 

If the bill does make its way into law, it may also provide unforeseen benefits for advisers. Enhancing tools that let clients access their entire retirement savings will ultimately allow them to offer up a fuller financial picture to their wealth managers. The database could help advisers steer clients to a more comfortable retirement. 

While the road to enacting the bill may be treacherous, legislation that makes the retirement account landscape easier for Americans to navigate ultimately helps put them on the right track to retirement — and that’s a good thing for the advice industry.