May 3, 2025 | 4-5 Minute Read
A new qualified retirement plan feature introduced by SECURE 2.0 is the auto-portability rollover provision. This provision aims to help workers keep their retirement savings together, even when they change employers, moving the participant’s account balance to the new employer’s qualified retirement plan. This provision works in conjunction with a plan’s involuntary distribution threshold (also known as the force-out or mandatory cash-out limit). For more information on how the involuntary distribution threshold works, please see our article “SECURE 2.0: Involuntary Cash-Out Limit Increased to $7,000 for Retirement Plans.”
When It Became Effective
In late 2023, the Department of Labor cleared the way for auto-portability by finalizing the Prohibited Transaction Exemption 2023-03, “which allows an automatic portability provider to receive a fee in connection with executing an automatic portability transaction for certain distributions into Safe Harbor IRAs.”
Plan sponsors who wish to implement auto-portability in their plan will typically need to amend their plan document. According to guidance from the IRS in Notice 2024-2, formal plan amendments for SECURE 2.0 provisions are due December 31, 2026 for most plans (later for governmental plans). They will also need to coordinate set up with their auto-portability provider.
Please note that the DOL’s rules are still pending finalization – auto-portability providers are operating under the statutory framework, using a good-faith interpretation of the law until final regulations are locked in.
How it Works
If elected in the plan’s document, a 401(k), 403(b), or governmental 457(b) plan may force-distribute account balances of participants who are no longer employed by the organization up to $7,000 without the participant’s or their spouse’s consent, after giving the individual notice and a chance to choose a payout option.
Vested participant accounts of more than $1,000 up to $7,000 must be rolled into a Safe Harbor IRA (Individual Retirement Account). Vested participant accounts of $1,000 or less may be paid in a single lump-sum. Here is where auto-portability kicks in. The auto-portability provider will periodically check if the individual has started a new job with a retirement plan. If so, the provider automatically transfers the money from the individual’s Safe Harbor IRA into the new employer’s 401(k)/403(b)/457(b) plan account. dol.gov.
Advantages
One major aim of SECURE 2.0 is to improve Americans’ retirement readiness. Often, terminated employees with smaller balances cash out their balances, which can be a hindrance in the long run for sustained retirement savings. Furthermore, those who leave their accounts with a former employer or are moved to a Safe Harbor IRA as part of a plan’s Involuntary Cash-Out Limit election, may simply lose track of old accounts (resulting in unclaimed funds or “lost” retirement accounts). Thus, auto-portability can dramatically reduce “leakage” from the retirement system, i.e. money leaving the retirement savings system prior to retirement by consolidating accounts under a single employer.
Other Considerations
Because auto-portability involves exercising discretion over plan assets, adding auto-portability is a fiduciary decision for a plan sponsor. As with the plan sponsor’s other fiduciary decisions, they must act prudently and in the best interest of participants. When selecting an auto-portability provider, plan sponsors should evaluate and monitor:
- the provider’s capabilities
- fees
- security protocols
- success rate in reconnecting accounts
The decision to implement auto-portability and the election of an auto-portability provider should be documented (just like adopting auto-enrollment or any plan feature) to show the rationale and how you considered the best interests of participants.
In accordance with amending their plan to allow for auto-portability, plan sponsors will need to provide employees with an updated Summary Plan Description (SPD).
It is important to note that the auto-portability provider will be required to provide participants with a notification giving them the opportunity to opt out of the transfer of their Safe Harbor IRA to their new employer’s plan.
Benefits² Administrators clients: If you have questions about adding auto-portability to your plan, we encourage you to reach out to your dedicated Retirement Analyst to help you analyze the impact of this change on your plan’s demographics and goals, the availability of auto-portability providers for your plan, guide you through provider selection, and the plan document amendment process. They can also help review your plan’s current force-out provisions and coordinate with an auto-portability provider to explore implementation and understand that provider’s process and requirements.
For non-clients or plan advisors seeking guidance: Feel free to contact Leslie Wood (lwood@benefits2llc.com) for additional information and support. Leslie can provide an overview of the SECURE 2.0 auto-portability provision, share insights on industry best practices, and help you determine how to approach this feature with your service providers. Whether you are looking to adopt auto-portability or just want to learn more about its potential impact, we are here to help.
Our Benefits² Administrators team is here to help you navigate these new retirement plan rules and optimize your plan’s design for both efficiency and participant success.
JP Perryman, QKA
Jeremiah “JP” Perryman, QKA is the Compliance and Operations Manager at Benefits² Administrators. He has more than 15 years of experience working with qualified retirement plans.