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Compliance January 19, 2024
Auto-Portability Proposal Is In
The proposal would implement a SECURE 2.0 provision intended to make it easier to transfer money between DC plans to limit leakage.
Reported by Paul Mulholland
The Department of Labor has proposed a regulation that would permit auto-portability providers to charge a reasonable fee for transferring retirement savings from an individual retirement account to a new Employee Retirement Income Security Act retirement plan.
Under Section 304 of the SECURE 2.0 Act of 2022, sponsors may distribute the account balance of an inactive participant to an IRA if the balance is $7,000 or less. The proposed regulation would codify Section 120 of SECURE 2.0, which permits the balance of such an IRA to then be transferred to a plan in which that participant is now active.
In other words, if a participant leaves one employer, and their retirement plan savings are transferred to an individual retirement account, Section 120 permits that money to be moved to their new employer’s plan. The provision is intended to reduce leakage of retirement plan assets.
The proposed regulation permits service providers making such transfers to charge a reasonable fee. The imposition of the fee has certain requirements outlined in the proposal, such as prohibition of a liability waiver for an improper transfer.
The comment period for the proposal will remain open for 60 days after it has been entered into the Federal Register.