Is employee demand behind the shift toward portable retirement plans?

State-mandated plans designed to make retirement savings plans accessible to a larger number of America’s workforce may not be the panacea many hoped they would be.

Traditional 401(k) plans are often too expensive and complex for most small and medium-sized companies, leaving 81 million people without access to a workplace retirement savings plan. Many states are attempting to close this gap by mandating that employees offer a retirement plan and setting up state-run plans as an option.

However, a majority of respondents to Icon’s 2022 Retirement Trends Study indicated they do not want to save for retirement in a state-run plan. Seventy percent said they would prefer a plan offered through a retirement plan provider.

“For eight years we’ve been tracking employee trust in financial institutions, and how trust levels impact savings rates,” said Icon CEO Laurie Rowley. “This year we added trust in your state government. With states mandating retirement savings plans, this is an important data point. Turns out, trust in state government is low at just 14% compared to trust in financial institutions at 16%.”

This low level of trust helps explain why so many people do not want to use a state-run plan, said Rowley.

Related: Delaware now the latest state to provide a state-run retirement program

Employees remain committed to saving for retirement and generally trust their employer to help them make good financial decisions, the report said. However, they also are expressing frustration with some aspects of 401(k) plans. Employees are increasingly looking for personalization, simplification and especially seamless portability.

The survey found that 92% of employees want their retirement plan to move from job to job with them. Job change continues to be a point of failure for traditional plans. The Employee Benefit Research Institute (EBRI) estimates that about $92 billion in savings leaves U.S. retirement funds every year when workers switch jobs and cash out their retirement accounts. In addition, an estimated $1.35 trillion was left sitting in retirement accounts with previous employers last year.

“I’ve been conducting this study for years, and the data tends to be fairly stable,” said Rowley. “This year there were some remarkable changes in how employees are viewing their workplace retirement plans. These changes reflect a new prioritization of personal priorities in building financial well-being. We have officially entered the era of “employee-centric” retirement benefits.”

Evidence of that includes a 13-point increase in the number of employees who want a fully portable plan that doesn’t require a rollover (from 70% in 2020 to to 83% in 2022); a 15-point increase in employees who want a cash bonus instead of a match (from 55% in 2020 to 80% in 2022); and a 15-point increase in employees wanting access to emergency savings through their retirement plan (from 53% in 2020 to 78% in 2022).

Rowley said she’d encourage employers and advisors to recommend a portable retirement plan to employees who want an alternative to state-run plans. Plan portability is defined as a plan that follows an individual from job-to-job without requiring a rollover or change to plan investments.

Icon has launched a portable retirement plan that removes the high cost, complexity and regulatory burden from employers and provides every type of worker with a personal retirement plan that never requires a rollover. It travels with the saver from job-to-job without having to change their investments or plan. In addition, portable plans may be able to accommodate innovations such as cryptocurrency that are outside the scope of traditional 401(k) plans.

Other organizations are targeting portability as well. A new partnership between 401(k) administrators Fidelity Investments, Vanguard, and Alight Solutions, which represent approximately 43.8 million workers across more than 48,000 employer-sponsored retirement plans, will utilize Retirement Clearinghouse (RC), a service that provides account portability for retirement plans when workers change jobs.

The Icon study included 1,650 actively contributing retirement plan participants and actively employed workers without access to a plan, randomly selected from a nationwide pool. This study tracks over time attitudes and behavioral dynamics of savers. The survey took place in May 2022.

Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel.