House Bill Would Allow Sponsors to Force Larger Auto-IRA Cash Outs

The Retirement Plan Modernization Act enjoys bipartisan support and seeks to make it easier for small businesses to offer retirement plans while also maintaining important flexibility and cost efficiency.

As laid out in the text of the short bill, H.R. 4158 seeks to help small businesses better manage the administrative expenses of retirement plans by providing an update to the automatic individual retirement account (IRA) rollover limit for former employees’ assets.

Under current law, automatic IRA rollovers occur if a participant is no longer employed by the employer sponsoring the retirement plan and their balance is between $1,000 and $5,000. Congress has periodically adjusted the cash-out limit over the years to reflect increasing costs of administration; however, the last time it was updated was 1997. The Retirement Plan Modernization Act would raise the automatic IRA rollover limit, based on the rate of inflation, from $5,000 to $7,600 and allow for future increases to be indexed for inflation.

In a statement made following the release of the bill, Representative Tim Walberg, R-Michigan, says he frequently hears from small businesses who cite not having enough resources to administer a plan as a key reason for not offering retirement benefits.

“This bipartisan bill is a commonsense step in our efforts to empower every American to retire with financial security and peace of mind,” he argues. “By reducing administrative costs, we can help more small businesses offer retirement benefits and ensure employees are not needlessly stuck paying higher fees.”

The bill has already garnered the support of national business lobbying groups, including the U.S. Chamber of Commerce.

“The chamber thanks Chairman Walberg and [independent Representative Gregorio] Sablan for introducing the bipartisan Retirement Plan Modernization Act. Increasing the cash-out limit is long overdue,” argues Randy Johnson, senior vice president of labor, immigration, and employee benefits at the U.S. Chamber of Commerce. “It has not been touched in 19 years and is not subject to indexing, unlike many other limits in the retirement system. Updating both of these flaws will streamline retirement plan administration and reduce burdens for employers, especially small businesses.”

Lynn Dudley, senior vice president, global retirement and compensation policy at the American Benefits Council, also voices support for the bill in an emailed statement: “Increasing the threshold for employers to cash-out retirement plan accounts brings us into the 21st century and reduces administrative expenses which in turn makes it easier for employers to maintain retirement plans and for employees to keep their retirement assets with them as they move jobs.”

Representative Walberg serves as chairman of the Subcommittee on Health, Employment, Labor and Pensions, while Representative Sablan serves as ranking member of the subcommittee.