By Tom Hawkins
On 11/7/18, the U.S. Department of Labor (DOL) proposed a Prohibited Transaction Exemption (PTE) for Retirement Clearinghouse’s (RCH) auto portability program, allowing for public comments by 12/24/18. On 1/7/19, after a brief delay triggered by the partial federal government shutdown, all official public comments were posted.
If the feedback provided by major retirement industry associations is any indication, then auto portability has a bright future.
Representing a broad cross-section of stakeholders in America’s retirement system, many of these organizations offered strong, unequivocal support for auto portability, including some important suggestions for improvements.
Auto portability is the routine, standardized and automated movement of inactive defined contribution plan participants’ retirement balances subject to mandatory distributions from their former retirement plans to active accounts in their current employers’ plans. Conceived and developed by RCH, auto portability curbs the unprecedented levels of cashout leakage that occurs as these participants change jobs.
As a retirement savings public policy initiative, auto portability has enjoyed broad-based support from legislators, key industry centers of influence and retirement researchers.
In November, the DOL took two important actions widely-regarded as supportive of auto portability:
- DOL Advisory Opinion 2018-01A: Issued 11/5/18, it describes key aspects of RCH’s auto portability program, while clarifying the fiduciary status of RCH and plan sponsors in its operation.
- Prohibited Transaction Exemption Application D-11938:Proposes to exempt RCH -- acting as a fiduciary – from certain prohibited transaction restrictions under ERISA and allows RCH to receive a fee for transferring assets from a safe harbor IRA to an individual’s new plan account.
Comments by Major Industry Organizations
When the final public comments on the PTE were posted on 1/7/19, some very distinguished retirement industry organizations had weighed in, representing a diverse cross-section of retirees, women, American enterprise, plan sponsors, retirement industry professionals, securities firms, banks, and asset management companies.
Organizations expressing support for the proposed PTE included:
- American Retirement Association (ARA)
- U.S. Chamber of Commerce
- American Benefits Council
- Women’s Institute for a Secure Retirement (WISER)
In addition to their strong support of the PTE, the U.S. Chamber, the American Benefits Council and WISER all suggested that the scope of the PTE be expanded to include existing safe harbor IRAs, which could extend auto portability’s benefits to include millions of participants previously forced out of their plans, prior to the DOL’s proposed exemption.
For its part, AARP was also supportive of both RCH and the DOL’s efforts, while offering suggestions on additional participant and beneficiary protections.
As an exception, the joint comments supplied by the Consumer Federation of America and the National Employment Law Project were more-skeptical, suggesting that the DOL consider more restrictions and “guardrails.”
The procedure for handling Individual prohibited transaction exemptions falls to the DOL’s Employee Benefits Security Administration’s (EBSA) Office of Exemption Determinations (OED), who must consider the public comments and determine what, if any, revisions are required, and to finalize or reject RCH’s proposed exemption. It’s anticipated that this process will be completed by April 2019.
Meanwhile, RCH is forging ahead, working with leading recordkeepers, plan sponsors and other industry organizations to drive the widespread adoption of auto portability.
As with any new development in the retirement industry, change proceeds at a deliberate pace. However, the DOL’s actions are providing auto portability with the fundamental regulatory mechanisms to be successful, resulting in millions of defined contribution plan participants who’ll preserve their retirement savings.