Auto-Portability Intended to Reduce Cash-Outs of Retirement Savings & Lost Accounts
Vickie Bell & Grace Bennett – RElationship managers
september 2024
There has been a lot of buzz around SECURE Act 2.0 and its many provisions. The next provision to be front and center for some plan sponsors is auto-portability. You may be familiar with the “mandatory force out distribution” provision contained in many 401(k) or 403(b) plans. This provision allows the minimal account balances of terminated participants, who receive notice and do not act, to be cashed out (less than $1,000) or rolled over to an IRA ($1,000-$7,000).
Although mandatory force-out provisions were a step in the right direction, in many cases, employees received cash payments initially saved for retirement purposes or lost track of mandatory force-out IRA balances. Auto-portability is the next iteration of the mandatory force-out provision. Auto-portability transactions involve automatically transferring a worker’s qualified mandatory force-out traditional IRA balance to their active retirement plan account sponsored by their new employer.
To support the auto-portability provision, several leading recordkeepers in the U.S. have formed an independent national consortium called the Portability Services Network (PSN). The PSN is encouraging all recordkeepers to join the PSN to minimize cash-out leakage and improve retirement outcomes for America’s under-served and under-saved workers.
How will PSN Facilitate These Transfers?
- Participant terminates employment and takes no action with their qualified retirement minimum account balance (up to $7,000).
- The minimum account balance is rolled over into a mandatory force-out IRA.
- The participant goes to work for an employer who is a member of the PSN and enrolls in their new plan.
- Provided that both plan sponsors are members of the PSN and a match is found, terminated employees with a pre-tax mandatory force-out IRA will have their balances automatically transferred to a new plan if they do not take action within 60 days of receiving the required notices.
Note – Roth IRA’s are not currently eligible to be rolled into 401(k) or 403(b) plans.
Plan sponsors will likely receive communication from recordkeepers in the PSN, including Empower, Fidelity, Principal, Vanguard, and TIAA, in the coming weeks and months offering them the ability to adopt this optional provision effective January 1, 2025. Any fees associated with these transfers will be assessed to plan participants and not the plan sponsor.
Lebel & Harriman Retirement Advisors: Your Partner
The L&H team is here to answer any questions you may have regarding auto-portability, so don’t hesitate to contact your Relationship Manager or Advisor for additional information.
This document is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. The information provided has been derived from sources believed to be reliable, but is not guaranteed as to accuracy, and does not purport to be a complete analysis of the material discussed.
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