Administration April 4, 2023

TIAA Joins Major Recordkeepers in Portability Services Network

The Retirement Clearinghouse, focused on the portability of retirement savings, continues to expand.

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TIAA is signing on to the Portability Services Network LLC consortium, it announced in a Tuesday press release, joining a group of participating recordkeepers.

TIAA is the latest to join the growing movement started by Retirement Clearinghouse LLC, with Alight Solutions, Empower and Fidelity already on board.

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“As an industry, we have an obligation to close the retirement savings gap and ensure more people can secure their financial futures,” stated Thasunda Brown Duckett, president and CEO of TIAA, in a press release. “Though we have a long way to go, this industry consortium enabling auto portability is an important step toward helping more Americans hold on to their money during their professional journeys, so they have the option to turn their savings into lifetime income when they stop working.”

Enrolled recordkeepers can automatically move retirement savings of less than $5,000 in 401(k), 401(a), 403(b) and 457 plan accounts to a new employer’s plan as participants change jobs. Features include a domestic call center, uncashed check services and a service to find missing or lost participants, according to the press release.

The network is open to all recordkeepers, the release stated.

A Brief History

The clearinghouse was designed to limit participants taking cash distributions from their retirement plan balances, particularly upon leaving a job, because employees who do so take an immediate tax hit and often decrease their overall retirement assets. It is widely seen as a better option to complete a rollover to another employer’s retirement plan or to an IRA.

The biggest causes of retirement plan leakage are pre-retirement distributions, loan defaults and hardship withdrawals.

“Forty percent of American families are at risk of running out of money in retirement, and the issue is even more dire for women and minority communities,” Duckett said in the release.

About $92 billion in savings leaves the retirement system every year because workers who switch jobs prematurely cash out their workplace retirement accounts, resulting in taxes and penalties on those cash-outs, according to Employee Benefit Research Institute data cited by RCH.

Workers with retirement account balances of less than $5,000 cash out at the time of their job change at much higher rates than other job-changing workers, the 2022 PLANSPONSOR Recordkeeping Survey found. Within this cohort, cash-out rates for job-changing minorities, low-income workers and women are also higher than average.

A report issued by the Congressional Joint Committee on Taxation in 2021 showed that 22% of net contributions made by individuals age 50 and younger left retirement plans between 2010 and 2015. The research was authored by U.S. Department of the Treasury personnel at the Office of Tax Analysis and by the Joint Committee on Taxation.

Retirement Clearinghouse currently works with more than 35,000 retirement plans and has helped guide more than 1.8 million plan participants with more than $29 billion in retirement savings, according to the release.

Ask the Experts April 4, 2023

Are Tax-Exempt Employers Eligible for Secure 2.0 Credits for Starting a Retirement Plan?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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Q: Do you know if the Secure 2.0 Act of 2022’s credits for small employer retirement plan start-up costs apply to tax-exempts?

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Unfortunately, they do not. Though it would be nice if there were some sort of government incentive for small, tax-exempt employers to establish retirement plans, particularly with the contribution-based credit that was added to the SECURE 2.0 Act in Section 102.

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The SECURE 2.0 Act, like its predecessor, the Setting Every Community Up for Retirement Enhancement Act of 2019, centers such incentives around tax credits. Tax credits, by definition, cannot apply to tax-exempt organizations, since such entities do not pay the type of taxes from which a credit can be taken. The Experts wrote a column on this issue after the original SECURE Act was passed, and the exact same logic applies to the SECURE 2.0 Act.

 

Perhaps Congress will consider incentivizing tax-exempt entities to establish plans in the future, but for now, this is certainly a distinction between taxable and tax-exempt entities.

 

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.

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