Auto Portability Guidance

Originally Published on 2/22/24

The DOL has released proposed regulations that would govern automatic portability transactions under the SECURE Act 2.0. Under SECURE 2.0, an employer can require immediate distribution without a plan participant's consent upon the participant's separation from service if the account balance is less than $7,000 (however, the participant must be given notice and not affirmatively opt out of the transfers). Under the DOL proposal, "auto-portability" involves three elements: (1) the original 401(k) plan that mandates these distributions (the "transfer out" plan), (2) a default IRA (in the participant's name) that receives the distributed amount as a rollover and (3) a "transfer-in" plan, which receives the rollover from the default IRA (only if it is determined that the participant has a new account with a new employer). While service providers associated with the transactions can rely on a new prohibited transaction exemption, they must also acknowledge their fiduciary status with respect to the rollover IRA (in writing). Their fees must be reasonable and approved in writing by the employer-sponsored plan fiduciary.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the DOL’s new auto portability

Below is a summary of the debate that ensued between the two professors.