The introduction of auto-portability rules under SECURE Act 2.0 aims to simplify transferring small retirement accounts when employees change jobs, reducing cash-outs and enhancing retirement savings. However, plan sponsors must consider fiduciary and liability implications before adopting this feature.
Fiduciary Responsibilities
Plan sponsors are fiduciaries under the Employee Retirement Income Security Act (ERISA), meaning they must act in the best interests of participants and beneficiaries. Key fiduciary considerations for adopting auto-portability include:
- Duty of Prudence: Fiduciaries must make informed decisions based on a thorough analysis. Sponsors should evaluate auto-portability service providers’ credentials and track records.
- Cost Analysis: Sponsors need to assess if the benefits of reduced cash-outs and increased retirement savings outweigh the administrative costs and fees.
- Participant Communication: Clear communication about how auto-portability works, its benefits, and any potential fees is essential to ensure participants can make informed decisions.
Liability Considerations
Implementing auto-portability can impact legal and financial liabilities for plan sponsors. Some liability considerations include:
- Compliance and Risk Management: Sponsors must ensure that service providers adhere to ERISA guidelines and other regulations to mitigate legal risks.
- Record-Keeping and Data Security: Sponsors must ensure that service providers have robust cybersecurity protocols to protect participants’ information.
- Monitoring and Oversight: Continuous monitoring of the auto-portability service is necessary to ensure it functions as intended and serves participants’ best interests.
Making the Decision
Deciding to implement auto-portability requires balancing fiduciary duties and liability risks. Plan sponsors should:
- Conduct due diligence on potential service providers.
- Consult legal and financial advisors to understand the implications.
- Seek feedback from participants to gauge interest and concerns.
By thoughtfully considering these factors, retirement plan sponsors can make informed decisions that align with their fiduciary responsibilities and safeguard participants’ retirement savings. To learn more about the auto-portability rule, contact the team at Innovative Investment Fiduciaries, LLC by calling (856)-242-3333 or by emailing resources@iifria.com.
