SECURE 2.0 was signed into law by President Joseph R. Biden on December 29, 2022, as part of the Consolidated Appropriations Act (CAA) of 2023. There were two primary provisions of the new legislation that affect auto portability, including:
SEC. 120. EXEMPTION FOR CERTAIN AUTOMATIC PORTABILITY TRANSACTIONS
Creates a statutory exemption from the prohibited transaction rules under Section 4975 of the Code providing relief when an entity receives compensation in connection with the transfer of an involuntary distribution (made under Code Section 401(a)(31)(B)(i)) from an IRA into an employer-provided defined contribution plan after the individual has been given timely notice and has not opted out. The relief is subject to a number of conditions. DOL is directed to issue certain guidance and studies related to the exemption. Treasury also directed to issue a report regarding the involuntary distribution notices.
Effective beginning one year after the date of enactment, or December 29, 2023.
SEC. 304. UPDATING DOLLAR LIMIT FOR MANDATORY DISTRIBUTIONS
Under current law, employers may immediately distribute without the consent of the participant and directly rollover former employees’ retirement accounts from a workplace retirement plan into an IRA if their balances are no more than $5,000. The new law increases the involuntary cash-out limit to $7,000 from $5,000.
While this provision does not mention auto portability specifically, by increasing the involuntary limits for mandatory distributions to $7,000, it will similarly increase the number of potential accounts to which auto portability can apply.
Effective for distributions after December 31, 2023.
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