The Retirement Plan Modernization Act: Bipartisan Bill that Will Help Reunite Retirement Plan Participants with Their Money
The average American changes jobs every four years and is expected to hold 10 positions before turning 40 years old. If you sponsor one of the country’s 650,000 defined benefit plans or defined contribution plans, you understand how difficult it can be to keep track of plan participants once they depart the company – not to mention the administrative challenges, fiduciary responsibilities and added cost created as the number of low balance accounts continues to rise.
In fact, more than 25 million participants left behind one or more retirement account between 2004 and 2013. Of these 25 million employees, how many moved, changed phone numbers, and/or stopped checking old email accounts? The goal of plan sponsors is always to reunite participants with their money – this is often a difficult feat as sponsors struggle to locate participants who have gone missing. Further adding to sponsors’ concern is the Department of Labor’s (DOL) increased audit focus on plan sponsors’ efforts to search for these missing participants.
Retirement Plan Modernization Act Offers Increased Relief
Relief for plan sponsors already exists in the form of automatic rollovers, which allow plans to automatically roll participants with vested balances of $5,000 or less to an IRA. Introduced in 2001 as part of Economic Growth Tax Relief Reconciliation Act (EGTRRA), that $5,000 threshold has remained the same for nearly two decades.
Fortunately, a bipartisan bill in congress may soon bring plan a much-needed increase in that size limit. The Retirement Plan Modernization Act, introduced in the House last November, would increase the automatic cash-out limit to $7,600, a $2,600 increase from the current threshold of $5,000, and index it going forward. The House Committee on Education and the Workforce Subcommittee on Health, Employment, Labor and Pensions heard testimony advocating in favor of the bill last month.
The last time the automatic cash-out limit was raised was 1997, with the threshold moving from $3,500 to $5,000 as part of the Taxpayer Relief Act of 1997. If passed into law, the proposed $2,600 increase would help ensure the cash-out limit accounts for inflation.
Who has the Most to Gain?
Though many believe plan sponsors would be the main beneficiaries of this proposed legislation, it is actually American workers who have the most to gain. Active employees that remain in plans may benefit from a reduction in fees related to missing participants that are often passed to them, while the missing former employees would be reunited with their assets.
Most people would not leave cash lying on the ground if it fell out of their wallets. Similarly, most missing participants do not realize they have an abandoned retirement account. In particular, it is the millennial and boomer generations set to see the greatest benefits. Millennials are moving jobs more frequently than previous generations and are the most likely to leave behind retirement savings accounts. Though boomers are less likely to abandon retirement accounts, there are still many who do. These generations are expected to face a retirement crisis as they run out of assets and do not have the means to support themselves through retirement.
Millennium Trust Advocates on Behalf of Sponsors and Participants
We are strong proponents of the Retirement Plan Modernization Act and will continue to support this and other measures we believe will help sponsors manage their plans and aid American workers in saving for retirement.
In addition to supporting initiatives that will strengthen the American retirement system, Millennium Trust helps plan sponsors track down participants in an effort to reunite them with their savings and promote retirement readiness. We’ve made significant investments in technology to find participants and reunite them with their savings accounts. As the DOL increased its focus on missing participants, so did our team. As a leader in automatic rollovers and missing participant issues since the introduction of EGTRRA, Millennium Trust has more recently improved our ability to work on behalf of plan sponsors to find the owners of abandoned accounts. We are able to locate the vast majority of missing participants, and are continuing to improve our processes.
The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.