The Department of Labor on Jan. 18 issued a rule proposal to implement a key SECURE 2.0 provision aimed at reducing plan leakage, by codifying the auto-portability process so that a worker's 401(k) plan can be automatically rolled over to a new employer when changing jobs.
One of the 90-plus provisions in SECURE 2.0, a comprehensive retirement security package Congress passed in December 2022, permits an automatic-portability provider to receive a fee in connection with executing an automatic-portability transaction.
The provision also raised the auto-portability threshold to $7,000 from $5,000.
When a participant with less than $7,000 in a 401(k) plan changes jobs, plan sponsors can offer them the option to cash out their balances, or transfer the funds to an individual retirement account or the worker's new employer's plan. And if the worker doesn't make a choice, the plan sponsor can roll that money into an IRA for the participant or send the participant a check.
In 2017, Retirement Clearinghouse launched a service that helps automatically move participants' savings back into retirement plans at their new employers. Subsequent Labor Department guidance allowed RCH to significantly expand the use of auto portability by allowing negative consent rollover contributions of small balances. SECURE 2.0 codified into law the use of negative consent rollover transactions, which are transactions without affirmative consent.
In October, RCH and the nation's top record keepers launched an auto-portability consortium with major plans for expansion.
The department's proposed rule would implement the SECURE 2.0 provision and covers topics that include: disclosures about automatic-portability transactions, fees, compensation and services; investments permitted in connection with automatic-portability transactions; and required actions to ensure that participant and beneficiary data is current, accurate and secure.
Upon publication in the Federal Register, there will be a 60-day comment period on the proposal.