The Department of Labor has issued a proposed rule regarding the management of retirement accounts and the seamless transfer of those funds during a job transition.

Evmark Business Solutions

The U.S. Department of Labor has announced a proposed regulation on automatic portability transactions under the SECURE 2.0 Act of 2022. This regulation aims to reduce cash-outs and lost accounts of retirement savings by helping workers keep track of their accounts and improving retirement security.

According to recent data, there are approximately 635,000 defined contribution plans in the United States, covering 86.6 million participants with a total of $9.3 trillion in assets. With the widespread use of these accounts, there is a need for automatic portability solutions to ensure that workers remain connected to their retirement savings when they change jobs.

Under the proposed rule, when workers leave a job with a retirement benefit valued at $7,000 or less, their savings plan can automatically roll over their benefits to a Safe Harbor IRA if the plan document allows it and the employee does not take any action after receiving required notices. Auto-portability transactions involve automatically transferring the retirement savings from the Safe Harbor IRA to an active account in a retirement plan sponsored by the worker’s new employer.

The proposed regulation would implement Section 120 of the SECURE 2.0 Act, which allows an automatic portability provider to receive a fee for executing an automatic portability transaction for certain distributions into Safe Harbor IRAs. This is done through an added exemption to Internal Revenue Code section 4975. The proposal covers eleven specific topics identified in the statutory exemption for regulations or other guidance to carry out the purposes of the auto-portability amendments.

The proposed regulation includes requirements that must be met for the automatic portability transaction to be covered by the exemption. These requirements include:

– Scope of the exemption
– Disclosures about automatic portability transactions, fees, compensation, and services
– Investments permitted in connection with automatic portability transactions
– Restriction on receipt or payment of third-party compensation
– Prohibition on exculpatory provisions
– Required actions to ensure current participant and beneficiary data

The proposed regulation is an important step towards reducing cash-outs and lost accounts of retirement savings. By implementing automatic portability transactions, workers can easily transfer their retirement savings to their new employer’s retirement plan, ensuring that they remain connected to their savings and improving their retirement security.  

Share This Article
Leave a comment