The Labor Department is seeking
public comment on an “auto-portability” program intended to help workers
consolidate small 401(k) and IRA balances when they change jobs.
Under the plan,
according to Labor’s Employee Benefits Security Administration, “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.”
Employees with small account balances
in their company’s 401(k) plan often either take a distribution of their
retirement savings or move the account into an IRA when exiting. The same
outcome frequently occurs with small retirement accounts when a company
terminates its 401(k) plan, according to EBSA.
terminates its 401(k) plan,
according to EBSA.
“An auto-portability program seeks
to 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,” EBSA said.
While the Employee Retirement Income
Security Act and the Internal Revenue Code prohibits a plan or IRA fiduciary
from using its discretion to cause the plan or IRA to pay the fiduciary a fee,
Labor said that it has the authority “to grant exemptions that are protective
of and in the interests of plan participants and IRA owners.”
EBSA said it welcomes innovation in
the area of retirement asset portability and encourages additional proposals.
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