The auto revolution in retirement plans (auto-enrollment, escalation, deferral) adds another option with the release last week of the U.S. Department of Labor’s (DOL) final Prohibited Transaction Exemption (PTE) for auto portability.
In tandem with the Advisory Opinion issued by the DOL in November 2018, the final PTE “completes the regulatory framework for auto portability,” according to Retirement Clearinghouse, a provider of portability and consolidation services that was driving the regulation.
Auto portability is defined as the routine, standardized, and automated movement of a retirement plan participant’s 401k savings account from their former employer’s plan to an active account in their current employer’s plan.
According to RCH, cash-outs of small accounts could be cut by two-thirds under a scenario where auto portability is broadly adopted and remains in force for a generation—and $784 billion in retirement savings would be preserved.
Public comments
During the comment period after the proposed PTE was issued, published comments from industry trade groups regarding auto portability were “overwhelmingly positive,” according to RCH.
“Defined contribution plan sponsors across the country now have the established guardrails they need to safely adopt auto portability,” Spencer Williams, Founder, President, and CEO of Retirement Clearinghouse, said in a statement. “The regulatory framework established by the advisory opinion and the final exemption provide legal protections for plan sponsors to help small-balance participants preserve their retirement savings by enhancing their plan services to include auto portability as their new default process when these participants change jobs.”
RCH claims to be the only independent provider that defines its primary business as the consolidation of retirement savings into active 401k or IRA accounts and provides plans and their participants with services that streamline the seamless transfer of savings between retirement accounts. The service, which automates the consolidation process for small accounts, has been in operation since 2017.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
