Stakeholders Ask for Fewer Regulatory Mandates for Automatic Portability

Two key industry groups asked the Department of Labor to reduce disclosure and other regulatory requirements in its retirement plan automatic portability proposal. The proposal was issued in January, and the comment period expired on Friday, with the lobby groups U.S. Chamber of Commerce and ERISA Industry Committee among those weighing in with request for changes.

The proposal would codify the SECURE 2.0 Act of 2022’s Section 120, which seeks to reduce leakage in the retirement system by allowing auto-portability service providers to charge a reasonable fee for transferring retirement assets from a safe harbor individual retirement account to a participant’s new defined contribution plan.

Providers could do this without the participant’s affirmative consent, provided the provider sends notice to the participant informing them of their ability to opt out. The proposal states that automatic portability transactions are intended to “benefit participants and IRA owners that are unresponsive or considered missing.”

As the proposal is written, in order for a provider to charge the participant, as opposed to charging one of the participating plans, the provider must provide notice to the participant, disclose its fees to the participant and maintain the same investment selection when possible, among other requirements.

Appointed Plan Official

The ERISA Industry Committee on Friday asked the DOL to remove certain requirements in the proposal, starting with the mandate that participating plans appoint a plan official “responsible for monitoring transfers into the plan and ensuring that the rolled-over funds are invested properly.” ERIC’s comment called this provision “unduly burdensome” and stated it would discourage sponsors from participating. If the DOL decides to keep this provision, according to the ERIC comment, the plan’s recordkeeper should be able to fulfill this requirement.

The Business organization U.S. Chamber of Commerce, which also submitted comments on Friday, concurred that this provision should be removed because many plan sponsors lack access to retirement accounts to confirm the transfer. Instead, the Chamber of Commerce’s comment stated, the DOL should require the portability provider to maintain policies and procedures that ensure the “automatic portability transaction will be invested in accordance with a participant’s election or the default election if there is no current election.”

Other Provisions

Both ERIC and the Chamber of Commerce also asked the DOL to remove the requirement that portability providers make non-English disclosures and call centers available if they notify a participant who lives in a county in which at least 10% of the residents are literate only in a particular non-English language.

ERIC wrote that this provision “will simply serve to increase the administrative costs of sponsoring a retirement benefit, which will ultimately be borne by participants.”

In its call for comment, the DOL had asked for opinion on whether it should require portability providers to keep insurance for digital data breaches in a final rule. The Chamber of Commerce answered that plan sponsors should not be required to keep insurance and this decision should be left to the provider.

The proposal also requires portability providers to acknowledge that they are a fiduciary when effecting portability transactions. The Chamber of Commerce requested that the DOL clarify that the fiduciary relationship extends only to the IRA owner in the portability transaction, not to the IRA itself or to the participant in an ongoing relationship that extends past the portability transaction.

Compliance Period

The proposal has an effective date of 60 days after its finalization. ERIC recommends that this be extended to at least 180 days, and the Chamber of Commerce recommended 12 months. The Chamber of Commerce noted that many provisions will require the negotiation of new contracts, which it argued cannot be done in 60 days.

The DOL has not announced a date for a final auto-portability rule.