Post by Admin/YBB on Feb 10, 2024 13:22:51 GMT -6
Retirement Portability
A serious issue is that small workplace retirement plans are (i) cashed out by plans and used unwisely for expenses (after paying 10% penalty and tax), (ii) forgotten, or (iii) involuntarily rolled over into a Safe Harbor IRA. These involuntary Safe Harbor IRAs (also called Automatic Rollover IRAs) have the problems of poor default choices (possibly bank CDs or money-market funds) and annual fees that may eventually deplete small balances; the involuntary/forced aspect comes into picture when the former employee hasn't responded to any communications in a reasonable time and the plan wants to remove small balance accounts from its books.
Secure 2.0 requires workplace retirement plan (401k/403b) portability for small accounts ($1K-$7K; limit adjusted) into another job's plan or involuntary Safe Harbor IRAs. Plan balances under $1K can still be cashed out - i.e., the plans can simply send the checks to former employees who can then rollover into IRA or just use the money for expenses (paying 10% penalty and taxes). Unfortunately, the reality is that most people who get the checks in hand don't follow through with the rollovers.
The Portability Services Network (PSN) enables auto-portability of small accounts (up to $7K) on job switches when both plan sponsors belong to the PSN. The PSN membership is currently Alight, Vanguard, Fidelity, Empower, TIAA, and Principal. There is no reason why this system cannot be used for larger accounts, but the pitch for these services is for smaller accounts that fall through the cracks. Supposedly, people with larger balances are more sophisticated and knowledgeable, and can follow through the current manual system of retirement fund transfers; they may not want to pay the related PSN auto-transfer fees (lesser of 5% of the balance or $30).
RCH (Retirement Clearinghouse) provides services for PSN members and also customized services for non-PSN members. It also uses various databases for finding lost employees (with undeliverable addresses and/or inactive phones), the assumption being that they may be working at some place.
Deciphering the Alphabet Soup
R L Johnson (RLJ) has a group of companies to which Retirement Clearinghouse (RCH) belongs. RCH and several retirement plan firms have set up the Portability Services Network (PSN) that includes Alight, Vanguard, Fidelity, Empower, TIAA, and Principal.
Edit/Add: The entire legislation isn't new. But Secure 2.0 changed the limits and provisions that make auto-portability possible.
News www.cnbc.com/2024/02/10/policy-changes-look-to-reduce-401k-plan-leakage.html
RIABiz News riabiz.com/a/2024/2/6/portability-is-set-to-boost-and-solidify-93-trillion-401k-system-by-eliminating-cash-outs-rollovers-and-fragmented-orphaned-plans
PSN News psn1.com/news/press-release-portability-services-network-launches-nations-first-solution-to-move-workers-retirement-savings-when-changing-jobs
Investopedia www.investopedia.com/terms/a/automaticrollover.asp
DOL Update www.dol.gov/newsroom/releases/ebsa/ebsa20240118
PSN psn1.com/
PSN & TIAA www.tiaa.org/public/about-tiaa/news-press/press-releases/2023/04-04
RCH rch1.com/
RCH Auto-Portability FAQs rch1.com/auto-portability/frequently-asked-questions
RLJ rljcompanies.com/
A serious issue is that small workplace retirement plans are (i) cashed out by plans and used unwisely for expenses (after paying 10% penalty and tax), (ii) forgotten, or (iii) involuntarily rolled over into a Safe Harbor IRA. These involuntary Safe Harbor IRAs (also called Automatic Rollover IRAs) have the problems of poor default choices (possibly bank CDs or money-market funds) and annual fees that may eventually deplete small balances; the involuntary/forced aspect comes into picture when the former employee hasn't responded to any communications in a reasonable time and the plan wants to remove small balance accounts from its books.
Secure 2.0 requires workplace retirement plan (401k/403b) portability for small accounts ($1K-$7K; limit adjusted) into another job's plan or involuntary Safe Harbor IRAs. Plan balances under $1K can still be cashed out - i.e., the plans can simply send the checks to former employees who can then rollover into IRA or just use the money for expenses (paying 10% penalty and taxes). Unfortunately, the reality is that most people who get the checks in hand don't follow through with the rollovers.
The Portability Services Network (PSN) enables auto-portability of small accounts (up to $7K) on job switches when both plan sponsors belong to the PSN. The PSN membership is currently Alight, Vanguard, Fidelity, Empower, TIAA, and Principal. There is no reason why this system cannot be used for larger accounts, but the pitch for these services is for smaller accounts that fall through the cracks. Supposedly, people with larger balances are more sophisticated and knowledgeable, and can follow through the current manual system of retirement fund transfers; they may not want to pay the related PSN auto-transfer fees (lesser of 5% of the balance or $30).
RCH (Retirement Clearinghouse) provides services for PSN members and also customized services for non-PSN members. It also uses various databases for finding lost employees (with undeliverable addresses and/or inactive phones), the assumption being that they may be working at some place.
Deciphering the Alphabet Soup
R L Johnson (RLJ) has a group of companies to which Retirement Clearinghouse (RCH) belongs. RCH and several retirement plan firms have set up the Portability Services Network (PSN) that includes Alight, Vanguard, Fidelity, Empower, TIAA, and Principal.
Edit/Add: The entire legislation isn't new. But Secure 2.0 changed the limits and provisions that make auto-portability possible.
News www.cnbc.com/2024/02/10/policy-changes-look-to-reduce-401k-plan-leakage.html
RIABiz News riabiz.com/a/2024/2/6/portability-is-set-to-boost-and-solidify-93-trillion-401k-system-by-eliminating-cash-outs-rollovers-and-fragmented-orphaned-plans
PSN News psn1.com/news/press-release-portability-services-network-launches-nations-first-solution-to-move-workers-retirement-savings-when-changing-jobs
Investopedia www.investopedia.com/terms/a/automaticrollover.asp
DOL Update www.dol.gov/newsroom/releases/ebsa/ebsa20240118
PSN psn1.com/
PSN & TIAA www.tiaa.org/public/about-tiaa/news-press/press-releases/2023/04-04
RCH rch1.com/
RCH Auto-Portability FAQs rch1.com/auto-portability/frequently-asked-questions
RLJ rljcompanies.com/