If you're like most Americans, you’ve probably changed jobs several times in your career. And each time, you may have left behind a small retirement account with your former employer. But what happens to those accounts when you move on? Do you keep track of them? Do you roll them over to your new employer’s plan or an Individual Retirement Account (IRA)? Or do you cash them out and spend the money?
According to the U.S. Department of Labor (DOL), millions of workers lose track of their retirement savings when they change jobs. This can result in lower retirement income, higher fees, and more taxes. To address this problem, the DOL recently proposed a rule that would facilitate automatic portability of retirement accounts for workers who switch jobs.
What Is Automatic Portability?
Automatic portability is a feature that allows your retirement savings to follow you from one employer to another without any action required from you. It works like this:
- When you leave a job with a retirement plan with savings totaling $7,000 or less, the plan can automatically roll the money into a Safe Harbor IRA if the plan document allows it and you do not take action after receiving the required notices.
- When you start a new job with a retirement plan, the Safe Harbor IRA provider can automatically transfer your savings to your new employer’s plan if the plan document allows it and you do not opt out after receiving required notices.
The DOL’s proposed rule would allow vendors to charge reasonable fees for processing these transactions, which are currently prohibited by law. It would implement provisions of the federal SECURE 2.0 Act that allow automatic portability providers to receive reasonable fees in connection with executing automatic portability transactions through a new exemption in the Internal Revenue Code. In addition, the rule would also impose certain safeguards to protect workers’ interests, such as disclosure of fees, fiduciary responsibility, data security, and record keeping.
What Are The Benefits Of Automatic Portability?
Automatic portability can help you save more for retirement by:
- Keeping your retirement savings consolidated in one place, making it easier to manage and monitor your investments
- Reducing the risk of losing track of your retirement accounts or forgetting your passwords and login information
- Avoiding the temptation of cashing out your retirement savings and paying taxes and penalties
- Saving on fees and expenses that may be higher in Safe Harbor IRAs than in employer-sponsored plans
- Taking advantage of the higher contribution limits and employer-matching contributions that may be available in employer-sponsored plans
How Can You Take Advantage Of Automatic Portability?
To benefit from automatic portability, check with your current and former employers to see if their retirement plans offer this feature. If they do, you must ensure you receive and read the notices informing you of your rights and options. You’ll also need to update your contact information with your current employer and IRA provider so they can reach you when necessary.
If your current employer doesn’t offer automatic portability, you can still take action to consolidate your retirement accounts on your own. You can either roll over your old accounts to your new employer’s plan or an IRA of your choice. This way, you can avoid the drawbacks of having multiple small accounts and enjoy the benefits of having a larger retirement nest egg.
Remember, your retirement savings are your future. Don’t let them get lost or forgotten. Take advantage of automatic portability or rollover your accounts today. Your future self will thank you.
Actions For Employers
As a business owner, the first step in supporting your employees is determining whether your retirement plan currently allows automatic portability transactions. If it doesn’t, decide what steps you need to take to make that feature available in your plan. Or, you can partner with a professional employer organization (PEO) like GMS. Our retirement experts at GMS ensure seamless transitions for employees when transitioning to our retirement plan. No more burdens associated with managing employees' retirement benefits. Partner with GMS to unlock opportunities for your business and your employees. Get a quote from us today!