Client Login

Stay Updated

Subscribe to the INSURICA blog and receive the latest news direct to your inbox.

Subscribe to the blog

New Legislation for Reducing Premature Retirement Savings Cashouts

United States Senators Tim Scott (R-S.C.) and Sherrod Brown (D-OH) have introduced the Advancing Auto Portability Act of 2022, which would make it easier for workers to keep their retirement savings with them when they switch jobs. The bill aims to encourage the adoption of auto portability programs.

Currently, when workers with less than $5,000 in retirement savings leave their job, they often cash out their retirement savings, which can lead to significant long term financial losses. According to Boston College’s Center for Retirement Research, if a participant prematurely cashes out their 401(k), they can lose as much as 25% in potential savings for their retirement.

According to the Employee Benefit Research Institute, 31% of the 14.8 million people with 401(k) accounts who change jobs every year will cash out their accounts within one year of the change. However, it is estimated that increased adoption of auto portability would result in an additional $1.5 trillion in retirement savings over 40 years.

The Advancing Auto Portability Act of 2022 would incentivize employers who adopt auto portability with a tax credit of $500 if they offer this option to their employees. Employees should be notified 30 days prior to the transaction and be allowed to opt out.

The legislation also sets some ground rules for automatic portability providers, including:

  • Providing written acknowledgment that it is a fiduciary for the owner of the IRA
  • Limiting fees so they do not “exceed reasonable compensation”
  • Forbidding the marketing or selling of information related to the IRA
  • Providing services on the same terms to all plans

Keeping records for a minimum of six years and conducting annual compliance audits.

For more Employee Benefits information, contact INSURICA today.

Copyright © 2022 Smarts Publishing

About the Author


Share This Story

Keep up to date

Subscribe to the INSURICA blog and receive the latest news direct to your inbox.

Subscribe to the blog

Related Blogs

Q4 2022 Essentials for Plan Sponsors

December 1st, 2022|Blog, Employee Benefits|

The RxDC reporting requirement requires employers to submit prescription drug data to the Department of Health and Human Services (HHS), the Department of Treasury, and the Department of Labor (DOL). The deadline is December 27, 2022. Some of the required information includes:

Five Critical Issues for Employers Reporting 2023 ACA Compliance

November 29th, 2022|Blog, Employee Benefits|

According to the Affordable Care Act (ACA), applicable large employers (ALEs) are obligated to offer full-time employees and dependents affordable minimum essential health coverage. They must also report to the IRS information about the health coverage plans they offer.

Go to Top