The Department of Labor gave Retirement Clearinghouse LLC the green light Wednesday to expand its auto-portability program, which is expected to reduce plan leakage and missing participants.
The green light comes by way of a Labor Department final prohibited transaction exemption for auto portability. It follows a November advisory opinion that identified RCH as the fiduciary when a participant's small-balance terminated account or safe-harbor IRA are automatically rolled into a participant's current employer plan.
"The Department of Labor’s final guidance for auto portability is a crucial step toward closing a gaping hole in the infrastructure of the U.S. retirement system,” said Robert L. Johnson, founder and chairman of The RLJ Cos. and majority owner of RCH, in a statement. “The issuance of the final exemption is a milestone in the years-long sponsorship and innovative initiative by Retirement Clearinghouse, and it is an exceptional example of how policymakers in Washington, D.C., can facilitate a private-sector innovation that will produce benefits for millions of workers, especially the acutely undersaved segments of America’s minority population.”
When a participant with less than $5,000 in a 401(k) plan changes jobs and does not move his or her money, the plan can transfer the account savings into an individual retirement account. The IRAs are then typically invested in either a money market fund or certificate of deposit, which do not offer high returns. About six years ago, RCH set out to create a service that helps automatically move participants’ savings back into retirement plans at their new employers.
RCH has developed a “locate, match and transfer” technology that involves periodic queries of cooperating record keepers’ systems to ascertain if the IRA owner has become a participant in an individual account plan through re-employment and then effects a transfer of funds from the individual’s IRA to that new plan, according to the Labor Department advisory opinion.
Assets must first travel through a safe-harbor IRA before transfer to a new employer plan.
Because RCH charges a fee to participants for its service, a prohibited transaction exemption was required.
The exemption permits RCH “to receive certain fees in connection with the transfer under the RCH program of an individual’s default IRA or eligible mandatory distribution account assets to the individual’s new plan account,” without the individual’s consent, although they are able to opt out.
“The regulatory framework established by the auto-portability advisory opinion and the final exemption provides legal protections for plan sponsors to help small-balance participants preserve their retirement savings by enhancing their plan services to include auto portability as their new default process when these participants change jobs,” said Spencer Williams, founder, president and CEO of RCH, in a statement.