Auto-Portability Explained: Auto-portability is a feature designed to help plan participants consolidate their retirement accounts when they change jobs. Here’s how it works:
- Problem: When employees switch employers, they often leave behind small balances in their old 401(k) accounts. These “orphaned” accounts can lead to administrative burdens for plan sponsors and create challenges for participants to manage their retirement savings effectively.
- Solution: Auto-portability aims to address this issue by automatically transferring small balances (typically below a certain threshold) from an employee’s old 401(k) account to their new employer’s plan when they change jobs. This consolidation helps participants keep track of their retirement savings and reduces the risk of lost accounts.
- Benefits for Plan Sponsors:
- Reduces the incidence of “missing participants” by consolidating accounts.
- Streamlines administrative processes for plan sponsors.
- Enhances overall retirement plan efficiency.
Considerations
- Automatic-portability providers must:
- Acknowledge in writing that they are fiduciaries for auto-portability transactions.
- Keep their fees reasonable and obtain approval from the plan fiduciary.
- Avoid marketing or selling data related to individual retirement plans.
- It is important for plan sponsors to review the auto-portability agreement offered by their recordkeeper/TPA.
- Automatic-portability providers must:
In summary, auto-portability is a positive step toward improving retirement planning and ensuring that participants receive their benefits. However, plan sponsors should exercise caution before signing an auto-portability with their provider. For more information on the provision or your plan overall, please feel free to contact the Innovative team at (856)-242-3343 or email resources@iifria.com.
