Small-Balance Retirement Account Holders to See Significant Changes in 2024

With the launch of the Portability Services Network and certain SECURE 2.0 Act of 2022 provisions going into place, millions of retirement savers with balances under $7,000 will see “big changes” in 2024, according to Retirement Clearinghouse, the PSN’s originator.  

The PSN announced on November 7 that its consortium went live, enabling digital automatic portability of retirement accounts from the country’s six largest recordkeepers. 

As of November, three of the six—Alight Solutions, Fidelity Investments and The Vanguard Group—had all completed implementation and were in the process of onboarding plan sponsors to automatically port 401(k) plan balances between member recordkeeping platforms when participants change jobs.  

The other three recordkeepers in the network—Empower, Principal Financial Group and TIAA—are slated to go live with their plan sponsors by the end of next year.  

For 2024, Retirement Clearinghouse predicts that the use of the PSN will intensify as more plan sponsors adopt the service, and as recordkeepers begin to extend it to more plan sponsors.  

Additionally, on December 29, Section 120 of SECURE 2.0, Exemption for Certain Automatic Portability Transactions, kicks in, codifying auto-portability. In support, the Department of Labor drafted its guidance and submitted it to the Office of Management and Budget for review. 

As a result, as of January 1, 2024, an employer is permitted to distribute a terminating participant’s account balance without participant consent if the balance is less than $7,000 and is immediately distributable. Also effective January 1, Section 304 of SECURE 2.0, Updating the Dollar Limit for Mandatory Distributions, increases the mandatory distribution threshold from $5,000 to $7,000. Employers are required to roll over this distribution into a default individual retirement account if the account balance is at least $1,000 and the participant has been notified and does not opt out.  

New legislation also has the opportunity to facilitate more portability and expand access to these services. For example, on December 13, a bipartisan bill was introduced in the U.S. Senate, allowing the rollover of Roth IRA savings into a Roth workplace retirement plan. If passed, the bill could further prevent retirement savings leakage by allowing a more seamless transfer of Roth savings.

RCH recently conducted an auto-portability simulation, a “discrete event simulation” that models the adoption of auto-portability within America’s defined contribution system, and found that, over the next 40 years, 342.2 million job-changing participants will be subject to mandatory distribution provisions, regardless of whether plan sponsors adopt auto-portability or not.  

But with auto-portability, RCH predicts that 175.6 million job-changing participants will consolidate, or “roll in,” appreciated retirement savings of $1.75 trillion over that 40 years, up from $155.2 billion without auto-portability. 

RCH argued that minorities will derive more benefit from auto-portability, as expanded defined contribution plan access will allow participation levels to mirror underlying population demographics. 

In the 40-year modelling period, under auto-portability 98 million minority job-changers with balances less than $7,000 will preserve an incremental $744 billion in retirement wealth, while 30 million Black Americans, a subset of the minority data, will preserve an incremental $216 billion in retirement wealth, according to RCH findings.