Saving for retirement would be much more accessible if 401(k)s were tied to the employee instead of the employer — which is exactly what one company aims to change.
Icon Savings is a provider of portable 401(k) savings accounts, which empower employees to manage their funds in one place, regardless of employer or job movement — something that could help boost savings and create greater access to retirement plans, which have been on a rapid decline over the past five years, says Icon Savings founder Laurie Rowley.
“One of the constant themes throughout my career has been how to fix the problems with 401(k) plans that are hurting workers,’” she says. “How do we fix leakage and rollovers and transitions and who's qualifying?”
It’s not that the 401(k) model is a bad one, she explains — but it excludes small businesses, the growing independent workforce and hybrid teams, and fails to take advantage of new technology that could streamline processes and offerings. As it stands, there are approximately 80 million individuals without access to a retirement savings plan, according to Rowley, a number that’s only anticipated to grow if retirement planning doesn’t adapt to the times.
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“If we think about [the retirement landscape], there were pensions — and then pensions went away and 401(k)s entered the game,” Rowley says. “There wasn't a product in there to take up the slack or the pent-up need.”
An Icon Savings account takes the traditional 401(k) model and combines it with a tech platform that offers retirement savings as a service available to workers whether they’re contractually employed or not. Icon Savings can be entirely third party — where the individual makes their own contributions without the need for an employer — or it can work in tandem with companies’ existing retirement accounts as a supplemental and customizable offering for employees.
An Icon Savings account eliminates many of the administrative tasks of managing employees’ 401(k) accounts for employers — such as doing a plan search, evaluations and hiring financial advisers — and allows employees to enroll themselves and link their payrolls, mitigating employer risk and giving employees greater control and ownership over their account.
Should an employee leave a company, the process to unlink their account is equally as seamless and painless. And because employers wouldn’t be making any additional contributions, the account is completely portable.
Portability may be an answer to a multimillion dollar question: how to keep employees from losing out on forgotten money in 401(k)s they forgot to roll-over. Right now there’s an estimated 24.3 million 401(k) accounts and $1.35 trillion in assets haven’t been rolled over by job changers as of May 2021 — with another 2.8 million accounts left behind annually, according to a
“Something that's so critically important to our financial well-being has a product flaw that causes people to become disconnected from their money,” Rowley says. “We're auto-enrolling people into plans and we're not educating them about what that means — that every time you change jobs, you have to completely change your plan. Those are some of the friction points that we're solving for.”
But despite innovating to a portable 401(k) model proving to provide a number of benefits for employees, employers are caught up in how it would affect their business model and their revenue model, according to Rowley. The traditional 401(k) model is deeply rooted in the same values as the pension because that’s what the industry knows — but it’s not a sustainable option anymore if employers want to keep employees at work and feeling supported.
“Right now we've got to find a way to cover those people,” she says. “So we don't create an entire generation of workers who don’t have access to these safety net benefits.”
