DOL Creates Safe Harbor For Automatic Cash-Outs Of Small Retirement Plan Accounts
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The U.S. Department of Labor has released the final version of a "safe harbor" regulation that could create more than $11 million in business for retirement plan advisors.
The rule, Fiduciary Responsibility Under the Employee Retirement Income Security Act of 1974 Automatic Rollover Safe Harbor, affects workers who are leaving their employers and have less than $5,000 in vested assets.
Some plans require the departing workers who have those small accounts to cash out immediately.
The Economic Growth and Tax Relief Reconciliation Act of 2001 lets plan fiduciaries roll the "mandatory distributions" into individual retirement accounts or individual retirement annuities when the departing employees fail to give other instructions.
Officials at the Employee Benefits Security Administration, the Labor Department agency that wrote the regulation, estimate in an analysis published in the Federal Register that the change will save 85,000 departing workers about $123 million in income taxes per year and protect $456 million in retirement savings.
The change could spur 611,800 small plans to spend about $11 million to rewrite plan documents, EBSA officials estimate. Large plans could spend millions more.
Fiduciaries must put distributions in safe investments, such as bank certificates of deposit or stable value products, that are liquid and have reasonable returns, but they turn over fiduciary responsibility once they roll over the assets, EBSA officials write in the regulation analysis.
