DOL Proposed Regs on Auto-Portability of Small 401(k) Balances

Under SECURE 2.0, an employer can require immediate distribution without a plan participant's consent upon the participant's separation from service if the account balance is less than $7,000 (however, the participant must be given notice and not affirmatively opt out of the transfers). Under the regs, "auto-portability" involves three elements: (1) the original 401(k) plan that mandates these distributions (the "transfer out" plan), (2) a default IRA (in the participant's name) that receives the distributed amount as a rollover and (3) a "transfer-in" plan, which receives the rollover from the default IRA (only if it is determined that the participant has a new account with a new employer). The service providers involved in the transaction must search recordkeepers' systems to determine whether the participant has established a new retirement account with a new employer. The regulations also impose regulations on any service providers associated with the auto-portability rules. While these service providers can rely on a new prohibited transaction exemption, they must also acknowledge their fiduciary status with respect to the IRA receiving the rollover distribution (in writing). Further, their fees must be reasonable and approved in writing by the employer-sponsored plan fiduciary. For more information on the auto-portability rules, visit Tax Facts Online. : Q . Note: Q is updated with a new Q3797.1.