A new bill that would allow for automatic 401k rollovers has received support from the U.S. House of Representatives, officially securing bicameral legislative backing.
The Advancing Auto-Portability Act of 2022 (H.R. 9252) was introduced on October 28 by Reps. Brad Schneider (D-IL) and Ron Estes (R-KS), both members from the House Ways and Means Committee. It is a companion bill to the legislation first introduced in June by senators Tim Scott (R-SC) and Sherrod Brown (D-OH) and is aimed at reducing leakage in defined contribution (DC) retirement plans.
The new bicameral support increases the bill’s chances of being included in upcoming Secure Act 2.0 legislation, expected to pass this year. “We hope that it indicates that not only do we have support for auto-portability on the Senate side, but we have support on the House, and that increases the chances of auto-portability language being included in SECURE 2.0,” said Renee Wilder Guerin, executive vice president, Public Policy, at Retirement Clearinghouse (RCH), in an interview with 401k Specialist.
“We hope that it indicates that not only do we have support for auto-portability on the Senate side, but we have support on the House, and that increases the chances of auto-portability language being included in SECURE 2.0.”
Renee Wilder Guerin, Retirement Clearinghouse
The bill will allow employers to move retirement savings from one account to another as employees change jobs—unless the employee says otherwise—in hopes to decrease the likelihood of premature cashouts. RCH research found that a participant who cashed out of their 401k plan with $5,000 today could potentially forfeit up to $52,000 in earnings they would accrue by age 65%.
“When [participants] get that notice that they can move the money or cash it out, its often easier to cash out,” said Guerin. “Auto-portability changes, or at least encourages, a different behavior. It encourages the individual to keep the money in the plan because it automatically moves that money over to their new employer, and therefore has an opportunity to grow and contribute to their retirement savings later.”
Plan leakage has long been a topic of concern within the retirement industry, and has disproportionately affected minority workers, low-income earners, women and younger generations. Guerin said she hopes the new bill could potentially alter the way participants prioritize retirement.
“I’m hoping it changes how people view their savings,” she added. “If the money moves with [participants] as [they] change jobs, I’m hoping that people start looking at this money that should stay and grow for their retirement.”
Under the legislation, employers who adopt the program will be eligible for a $500 tax credit to cover for any implementation expenses into the plan. The bill also requires that employees be given at least 30 days’ notice for an automatic portability transaction, with the ability to opt out, and that employees be given notice within three business days disclosing the nature of the transaction, fees, and contact information for the automatic portability provider.
Automatic portability providers who adopt the program must acknowledge in writing that it is a fiduciary on auto-portability transactions, its fees should not exceed reasonable compensation, it should not market or sell data related to the individual retirement plan, it should offer its services on the same terms to any plan, and it will keep records for 6 years and will conduct an annual audit to demonstrate compliance.
SEE ALSO:
- SECURE 2.0 Update: Where It Stands, What’s Likely to be Included
- Auto Portability’s Big Move: Major Recordkeepers Form Consortium with RCH
- 5 Reasons Why the New 401k Auto Portability Bill is So Important
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
