Portability: Past Is Prologue, But Progress Possible

Portability of retirement savings is not a new issue. In a recent commentary, former Senior Advisor to the Secretary of the Treasury Mark Iwry discusses this enduring matter, its importance and its prospects.

In a recent opinion column in The Hill, “Labor Department Rightly Trying to Plug Pension Portability Leaks,” Iwry — the 2018 ASPPA Harry T. Eidson Founder’s Award honoree — outlines discussions he had during the Clinton administration on the subject and where we are now, as well as considerations surrounding portability.

Iwry writes that during a 1996 Oval Office discussion about a technical Treasury/IRS proposed regulation amendment and ruling that he and his staff had just released regarding pension portability, he realized that while he was the “was the only one in the room who fully understood what we were talking about,” he also was “the only one in the room who failed to understand” that that “didn’t matter in the least.”

Iwry says that what one presidential aide argued at that time — that portability should be a higher priority than other issues — was premised on “the primacy of politics and the curious power of ‘pension portability’ to command attention in Congress and the media.”

Flashing forward to 2018, Iwry writes that despite that view, “not much has changed: The decades-long quest for improved pension portability remains a challenge.”

The problem, he argues, is not that participants cannot ever take their retirement savings with them from job to job; rather, it’s that doing so is “harder than you think” because one must do so on terms set by those who compete for assets under management. And those with small balances can experience forced cashouts, he notes.

However, Iwry observes, the Department of Labor’s recent request for comments on its proposal to allow auto-portability arrangements for amounts up to $5,000 may change the environment. The DOL, he notes,. “If [the proposed measures] work, they should encourage consolidation of multiple small retirement accounts, eliminating multiple fees, reducing leakage and making it easier for individuals to manage their savings,” he writes.

But the ball would still be in recordkeepers’ and plan sponsors’ courts, Iwry suggests, since their willingness to share data and to “transcend competitive pressures” would remain a key factor.