By Tom Hawkins
On April 16th, as part of their Strategic Issues Webinar Series, the LIMRA Secure Retirement Institute featured the webinar Regulatory and Legislative Trends Impacting the U.S. Retirement System. The LIMRA webinar featured presenter Michael Kreps, Principal, Groom Law Group, and was moderated by Judy Zaiken, Corporate Vice President, LIMRA.
Kreps, a highly-influential voice in DC on retirement public policy, addressed 4 key regulatory and legislative trends impacting retirement plan service providers, including:
- Expanding multiple employer plans
- Permitting "auto portability”
- Expanding the use of lifetime income options in defined contribution plans
- Providing 401(k) student loan benefits
After covering recent developments on multiple employer plans, Kreps turned to auto portability.
Kreps on Auto Portability
Kreps provided the audience with a DC insider’s perspective on auto portability, which he broadly characterized as having the potential to deliver “an enormous boost to the industry and to participants in general.”
Kreps began by describing the problems encountered by plan sponsors and participants in today’s environment when highly-mobile participants can’t easily move their savings after changing jobs. As a result, most participants cash out, paying taxes and penalties, or alternatively, leave their savings behind. Employers are often left holding the bag because these participants, maintains Kreps, “are not working for you, and they disappear – they’re hard to find and track down.”
LIMRA’s Zaiken offered her supporting view, referencing prior LIMRA research indicating that “40 cents out of every dollar doesn’t make it to retirement, and a lot of that comes from small accounts.”
Turning to mechanics, Kreps characterized auto portability as “establishing a hub between recordkeepers, would allow for the automatic movement of a participant’s account into their new employer’s plan.” This approach, continued Kreps, has “a lot of utility -- obviously, having more efficiencies with the recordkeepers would be incredibly helpful and prevent a ton of leakage.”
On the issue of missing participants, Kreps shared his view that auto portability could “help plan sponsors locate missing participants once the network is built” by identifying a separated participant’s active account somewhere else. “If you can identify the active account,” said Kreps, “then most likely you can get the current address and contact information.”
Next, Kreps turned to 2018 guidance from the Department of Labor (DOL) on auto portability, which came in the form of Advisory Opinion 2018-01A and a proposed Prohibited Transaction Exemption (PTE). According to Kreps, the DOL’s guidance, by clarifying the fiduciary obligations of the employer, and by allowing auto portability to use negative consent, created the conditions “for a real and profound impact on the retirement system” and added that “the DOL did a really great thing by promulgating this guidance.” Addressing the DOL’s next steps, he noted that they are “finishing the final prohibited transaction exemption now. That should be out soon, to set up the guardrails for how this works.”
Kreps concluded his update on auto portability with an optimistic assessment of auto portability’s progress and prospects, stating “this is a tremendous first step towards implementation – if we could get [auto portability] up and running, it would be a phenomenal achievement.”Back