The Employee Benefits Security Administration (EBSA) is seeking public commentary on a proposal to allow for the automatic transfer of 401(k) funds into an IRA or into another company’s 401(k) when a worker loses or changes jobs.
Frequently, employees leaving their current place of employment with account balances in the company’s 401(k) plan either take a distribution of their retirement savings or move the account into an IRA. The same outcome often occurs with small retirement accounts when a company terminates its 401(k) plan.
According to the agency, an auto-portability program would improve asset allocations by consolidating small retirement savings accounts, eliminate duplicative fees for small retirement savings accounts, and reduce leakage of retirement savings from the tax-deferred retirement saving system.
Employees would be told their 401(k) savings will be moved to tax-favored IRAs when they leave a job or if the plan is terminated, and that the employee’s savings in the IRA then would be automatically transferred to the 401(k) plan of the new employer when the employee finds a new job.
The Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 prohibit a plan or IRA fiduciary from using its discretion to cause the plan or IRA to pay the fiduciary a fee. The Department of Labor (DOL), however, has the authority to grant exemptions that are protective of and in the interests of plan participants and IRA owners.