Recently, we’ve read – mainly via paid promotions – about the existence of so-called “world-class” automatic rollover IRA services, which seem to be little more than old-school, traditional automatic rollover IRAs laying claim to unspecified, premium features.

During the past several years, much progress has been made to simplify the process of enabling defined contribution plan participants to transfer their savings from one plan to another when they change jobs. These strides have been made thanks to an ongoing partnership between the private and public sectors, and between Democrats and Republicans in Congress.

In November 2023, we saw the launch of the Portability Services Network, with our nation’s leading retirement plan record-keepers—Alight Solutions, Empower, Fidelity Investments, Principal, TIAA, and Vanguard—on board as founding members. The Portability Services Network makes the digital auto portability solution a reality for helping Americans keep their retirement savings invested in the system and working for them.

While small-balance retirement savings accounts have fared poorly in the past, their future has never looked brighter. Real progress is being made in reducing their numbers while simultaneously preserving and consolidating their savings, vs. previous “solutions” that encouraged them to cash out or exiled them to dead-end safe harbor IRAs.

The increase in the automatic rollover threshold from $5,000 to $7,000, as provided for in section 304 of the SECURE 2.0 legislation, will become effective for mandatory distributions made after December 31, 2023.

What will be the impact of these provisions, if fully embraced by plan sponsors? One thing is certain – on both a one-time and ongoing basis, far more terminated participants will be subject to the automatic rollover provisions of their former-employers’ plans.

A newly proposed bill -- the Advancing Auto Portability Act of 2022, co-sponsored by Senators Tim Scott (R-S.C.) and Sherrod Brown (D-Ohio), will offer tax credits to plan sponsors who implement auto portability, and codify rules for an industrywide auto portability network. The bill is expected to be rolled into the Senate version of the bipartisan Securing a Strong Retirement Act of 2022, which passed the U.S. House of Representatives on March 29 of this year.

Here are five reasons why the new auto portability legislation introduced in the Senate is so important.

At Retirement Clearinghouse (RCH), we’re excited about the 2020 prospects for auto portability.  Before we’re too far into a new decade, we wanted to pause, take a breath and share with you some highlights from 2019, a year that’s positioned the newest automatic, default plan feature for widespread adoption.
 

Fifteen years ago, when safe-harbor IRAs were first proposed as a destination for small, stranded 401(k) accounts that can be automatically rolled out of plans, then-U.S. Assistant Secretary of Labor Ann L. Combs spelled out what these investment vehicles were supposed to accomplish.

With the announcement of the Department of Labor’s recent actions, auto portability has taken center stage in the retirement industry. While auto portability has been well-known to a relatively small group of industry insiders, its recent, widespread coverage in the media has many asking the question “what is auto portability?”

With so many different -- and important -- perspectives on the matter, the best answer will depend on who’s asking the question. 

It was the best of times, it was the worst of times. 

For job-changing 401(k) participants with balances greater than $15,000, it was the spring of financial wellness, as the bulk of their retirement savings would remain intact.  For less-aristocratic 401(k) savers with balances below $15,000, it was the winter of despair, as most of their savings would be lost on the cashout chopping block or forcibly exiled to a safe harbor IRA, where more savings would perish.

Plan sponsors intuitively know that an explosion of small-balance 401(k) accounts held by terminated participants can create problems.  Unfortunately, few sponsors are clear on the factors that give rise to small accounts, and fewer still understand how they can utilize consolidation programs to solve the problem.