Yet another SECURE 2.0 provision - Auto-Portability

[Belgarath]

Just saw a brief article from Fred Reish on this.

I'm wondering why an employer would want to get involved in this, if approached by a recordkeeper, etc.? Seems like yet another possible fiduciary issue, yet another possible complication or item that may bring up questions, etc.

From my viewpoint, a participant has been notified about the cashout. They haven't responded, so account is rolled to IRA. Period. No further involvement - wash your hands of the whole thing. The participant then can do anything they want with the IRA.

Don't know what other thoughts folks might have? 

[Peter Gulia]

SECURE 2022’s § 120 provides a statutory prohibited-transactions exemption for an automatic-portability provider’s receipt of fees and compensation for its “services provided in connection with an automatic portability transaction.” Internal Revenue Code of 1986 (26 U.S.C.) § 4975(d)(25).

But nothing in SECURE 2022 § 120 provides an exception from a fiduciary’s responsibility under ERISA § 404(a) [29 U.S.C. § 1104(a)].

Congress directs the Secretary of Labor to “issue” regulations or other guidance by December 29, 2023 (which also is the first day the exemption becomes available). Congress directs that the guidance “make clear that the [IRC § 4975(d)(25)] exemption . . . applies solely to the automatic portability transactions described therein, and, to the extent the Secretary deems necessary or advisable, specify how the application of the exemption relates to or coordinates with the application of other statutory provisions, regulations, administrative guidance, or exemptions.”

Some might imagine the Labor department making a rule to interpret ERISA § 404(a) so a default-distributing ERISA-governed plan’s fiduciary is not responsible for a later automatic-portability transaction from the default IRA into a rollover-receiving employer-sponsored retirement plan.

Some fiduciaries might wait until such a notice-and-comment rule is published, effective, and applicable.

Some fiduciaries might consider whether such a rule would be enough to protect the fiduciary.

And some fiduciaries might wait until Congress enacts non-responsibility in a statute.

[Roycal]

Mr, Reish says: " As with any fiduciary decision, plan sponsors should investigate the arrangement—the services and fees—and satisfy themselves that it is prudent to provide the service to its nonresponsive participants."  I think this is probably the most important piece of advice from Mr. Reish.  This option provides the plan sponsor with another opportunity for a fiduciary violation.  That's the risk for the sponsor, although from a purely practical standpoint the amounts involved, even in the aggregate, are likely to be relatively small and therefore the plan sponsor's financial risk would be relatively small.  Just my thinking -- no advice intended.