The 2016 ERISA Advisory Council followed up on issues identified and recommended for further study by the 2014 and 2015 Council’s work on facilitating lifetime plan participation related to plan-to-plan transfers and account consolidations.

In a report, the Council made several recommendations to the Department of Labor (DOL). It recommended that the DOL issue a Request for Information (RFI) to explore how the Department can encourage and support the adoption of secure electronic data standards for the development of a process, system, platform and/or clearinghouse to facilitate acceptance and expedite processing of eligible rollovers into retirement plans covered by the Employee Retirement Income Security Act (ERISA). 

This recommendation was based on testimony the Council heard about the confusion and frustration many plan participants experience when attempting to transfer retirement plan assets from a former employer’s plan to a new employer’s plan. In addition, the ability to complete a plan-to-plan transfer is often hindered by a mismatch between the features of the former plan and the new plan, especially when outstanding loans are involved.

The Council also heard testimony from multiple witnesses about the concept of “auto-portability.” Witnesses provided testimony regarding the magnitude and impact of forced cash outs of small accounts (less than $1,000) and forced rollovers into safe harbor IRAs (for accounts greater than $1,000 but less than $5,000) as provided for in the Pension Protection Act (PPA). Tom Johnson of Retirement Clearinghouse (RCH) said RCH would prefer to see safe-harbor IRAs become a “recycling business,” with funds making their way back into qualified plans. RCH’s model estimates that a 50% reduction in forced cash outs would lead to an additional $1.3 trillion in retirement savings in qualified plans after 10 years.

Other witnesses spoke to the concept of “middleware” as a solution that would reside in the middle of all the recordkeeping systems to facilitate, through technology, the process of plan-to-plan transfers.

In its report, the ERISA Advisory Council also recommended the DOL publish retirement plan sponsor education to encourage sponsors to support participant-initiated plan-to-plan transfers, and publish sample participant communications that educate participants on the potential benefits of and process for consolidating accounts in retirement plans covered by ERISA. The Council’s report includes drafted materials about these topics for the Department’s consideration.

The Council heard testimony that plan sponsors and/or their administrators may be wary of promoting plan roll-ins so as not to run afoul of the DOL’s conflict of interest rule. So, the Council recommended the Department address questions regarding the final conflict of interest rule, its exceptions and any applicable prohibited transaction exemptions as they relate to communications to participants by employees of plan sponsors and service providers regarding plan-to-plan transfers and consolidation of accounts in retirement plans covered by ERISA.

The Council also recommended the DOL encourage and/or collaborate with the U.S. Department of the Treasury to summarize existing guidance with respect to the requirements to grant relief from disqualification for eligible retirement plans accepting rollovers, and accordingly, provide plain language education to plan sponsors and administrators; and revisit the Section 402(f) notice for harmonization with the Department’s objective of promoting lifetime plan participation and provide user-friendly accompanying guidance to encourage plan-to-plan transfers and consolidation of accounts in retirement plans covered by ERISA.  

Finally, it was recommended that the DOL engage in dialogue with states and political subdivisions considering and/or pursuing payroll-deduction savings programs, as well as with Treasury as it develops and oversees its myRA program, in order to identify impediments to portability between these programs and retirement plans covered by ERISA and to facilitate consolidation of participant accounts.