OPINION: The cashing out and loss of small 401(k) accounts is a well-defined and serious problem. Retirement Clearinghouse offers a solution.
Rejoice! Vanguard has hired Retirement Clearinghouse LLC to automatically transfer small balances from one 401 plan to another. This is a win for Vanguard and its customers, for Retirement Clearinghouse, which has been working on this project for many years, and for the retirement system as a whole.
Many years ago, Spencer Williams and Tom Johnson came up with a solution — automatically consolidate small accounts so that employees can aggregate their savings as they change jobs. They created Retirement Clearinghouse LLC to serve as the platform to consolidate balances.Consolidation helps the employees accumulate a more adequate level of retirement saving, because research shows that hitting the $20,000 milestone makes participants much more likely to preserve their balances.
Potential customers wanted to know who has fiduciary responsibility for this service. A Labor Department advisory opinion clarified that Retirement Clearinghouse is the fiduciary for these transactions. But the Employee Retirement Income Security Act of 1974 prohibits fiduciaries from self-dealing. That is, fiduciaries are not allowed to earn fees as a result of their recommendations. Hence, Retirement Clearinghouse needed an exemption from this provision, which they got in 2019.
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