With retirement savings being a key wealth-creating tool, black workers can use some help from Uncle Sam to build up their future nest egg.
That conclusion comes as reports claim that Americans have already lost $2 trillion collectively in savings by not transferring 401(k) retirement accounts from one employer to another.
Robert L. Johnson, chairman of The RLJ Cos., a portfolio of companies with holdings in several industries, including the RLJ McLarty Landers Holdings L.L.C., the the highest-earning black-owned auto company with revenues of $1.6 million and ranked No. 1 on the 2017 BE Auto 50 list) and majority owner of Retirement Clearinghouse, is among those supporting Sen. Tim Scott, R-South Carolina, for his leadership to reduce retirement plan leakage.
In a letter to Department of Labor Secretary R. Alexander Acosta, Scott and 10 Republican senators are requesting that the DOL allow for the usage of 401(k) auto portability. That transaction would allow workers to move 401(k) savings from an existing job to a new job, something they cannot do now.
Advocates Request Feedback
The letter precisely asks the DOL to offer an advisory opinion or other guidance clarifying the application of the Employee Retirement Income Security Act (ERISA) to auto-portability of retirement savings. The senators pointed out that a similar request was sent to the DOL in April 2013.
“We are concerned that the continued delay of the Department’s AO is a hurdle to the implementation of a workable, market-based solution that will help our constituents prepare for their retirement.” They stated further, “Without the DOL’s guidance, plan sponsors and others lack clarity around what can be done under the law to facilitate auto portability.”
The stakes are high on the retirement issue. The letter cites research from the Employee Benefit Research Institute that systemwide use of auto portability for all retirement balances could boost private-sector savings by about $2 trillion. It states halting leakage from smaller accounts alone would save $1.5 trillion.
Big 401(k) Problem: Millions of Americans Change Jobs Each Year
About 14 million Americans on average change jobs each year, with about 40% opting to “cash out” their 401(k)s instead of shifting those funds to another retirement account, Scott says. He added these “cash outs” incur penalties and taxes, leading to a $70 billion annual loss in savings. The highest “cash out” rate occurs with workers with the smallest account balances, those that are $5,000 or less. In many cases, those workers are black.
Aiming to prevent that from happening, the letter states “reducing leakage and consolidating low-dollar accounts through the greater use of auto portability will set millions of working Americans on a better path to a secure retirement.” Scott believes that his auto portability option could result in more than 2 million employees opting to keep their savings in retirement accounts instead of “cashing out” and incurring losses,” something that could hurt them financially as they approach retirement.
In response, a DOL spokesman said, “The Department welcomes new ideas on ways to help America’s workers manage their retirement accounts as they change jobs in today’s mobile economy. We have been working with company representatives on their request for an advisory opinion or other guidance, and will continue to do so.”
Retirement-Focused Trade Groups Back Petition
Several trade groups endorse Scott’s letter, including the American Retirement Association, American Benefits Council, Financial Services Roundtable, Investment Company Institute, Insured Retirement Institute, Securities Industry and Financial Markets Association and U.S. Chamber of Commerce to name a few.
Effort Could Help Narrow Wealth Gap Between Blacks and Whites
One of Johnson‘s companies, Charlotte, North Carolina-based Retirement Clearinghouse, offers employee retirement transition services and is an authority on auto portability. Johnson has been a leading proponent of closing the wealth gap between blacks and whites, using auto portability as one of the ways to accomplish that.
“As a businessman committed to finding business solutions to social problems and an employer of minority workers, I know firsthand the importance of retirement savings to close the wealth gap,” Johnson said in a statement. “I am calling upon Secretary Acosta to demonstrate President Trump’s commitment to improving the economic status of minority Americans by issuing an Advisory Opinion on auto portability. ”
“By doing so, the Secretary will demonstrate to African Americans, as I urged the president to do so last Fall, what African Americans stand to gain from a Trump administration. Over the coming generation, auto portability will preserve more than $480 billion in savings for low-wage working Americans and more than $698 billion in savings for all minority workers.”