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January 18, 2024 at 04:36 PM
The Employee Benefits Security Administration within the U.S. Department of Labor released proposed regulations on Thursday meant to expand the use of automatic retirement account portability tools.
Biden administration officials, led by Assistant Secretary for Employee Benefits Security Lisa Gomez, say the expansion of automatic portability will help ensure savers remain connected to their defined contribution retirement assets when changing jobs. Policymakers also hope the new rules will reduce the pace of small-account cash-outs.
The new regulations are being promulgated under the Setting Every Community Up for Retirement Enhancement 2.0 Act of 2022, known as the Secure 2.0 Act, which itself built upon prior DOL policies aimed at expanding auto-portability.
Specifically, the auto-portability provision that Secure 2.0 codified into law allows the ongoing use of “negative consent” roll-in transactions when an employee has a small retirement account held at a retirement clearinghouse. Experts said the law’s statutory language removed some potential uncertainty that had kept more retirement plan service providers and employers from fully embracing auto-portability.
In addition to eliminating a need for would-be auto-portability providers to seek a direct exemption from the DOL to offer such services, the Secure 2.0 Act also increased the minimum auto-portability account value threshold to $7,000 from $5,000.
The EBSA’s new proposed rule would implement Section 120 of Secure 2.0, which allows an automatic portability provider to receive an otherwise-prohibited fee in connection with executing an automatic portability transaction for certain distributions into and out of safe harbor individual retirement accounts, through an added exemption to Internal Revenue Code Section 4975.
The proposed regulations detail the 11 requirements under the statutory exemption that must be satisfied for the automatic portability transaction to be covered by the exemption. These topics include, among others, the scope of the exemption; disclosures about automatic portability transactions, fees, compensation and services; and the investments permitted in connection with automatic portability transactions.
