A new regulation proposed last week by the Department of Labor’s Employee Benefits Security Administration aims to help workers keep track of their retirement savings accounts better and improve their retirement security by reducing cash-outs when they change jobs.
The proposal would build upon the Setting Every Community Up for Retirement Enhancement Act 2.0, also known as Secure 2.0, passed in 2022.
“Past studies have shown that forgotten retirement accounts, otherwise known as “lost 401(k)s,” can cost retirement savers up to $115 billion annually from higher fees and lower investment returns if misallocated,” 401k Specialist Magazine reported.
When a worker leaves a job with a retirement benefit valued at $7,000 or less, the savings plan automatically can roll over the benefits to a Safe Harbor IRA if the plan document allows it, even if the employee does not take action after receiving required notices, according to the Labor Department. The proposed regulation automatically would transfer the worker’s retirement savings from a Safe Harbor IRA to an active account in a retirement plan sponsored by his or her new employer.
“With the widespread adoption of these accounts, there is a particular need for automatic portability solutions that help ensure participants remain connected to their retirement savings when they change jobs,” Assistant Secretary for Employee Benefits Security Lisa M. Gomez said in a press release.
The proposed rule would implement Section 120 found in SECURE 2.0, which allows an automatic portability provider to receive a fee when executing an automatic portability transaction for certain distributions into Safe Harbor IRAs, through an added exemption to Internal Revenue Code section 4975.
The proposal covers the 11 specific topics identified in the statutory exemption for regulations or other guidance to carry out the purposes of the auto-portability amendments.