- Current law permits plans to force out distributions of accounts with less than $5,000 in benefits if a departed employee does not affirmatively elect to receive his or her benefits. (That amount is increasing to $7,000 in 2024.)
- The “force-out” amounts must be rolled over into an IRA if the account balance is at least $1,000.
- SECURE 2.0 permits the provider of the IRAs that receive the forced-out amounts to continuously reach out to recordkeepers to determine if the IRA owner has begun participating in a plan that is recordkept by a participating recordkeeper and, if so, to transfer the IRA amounts to the IRA owner’s account in the new plan.
- The provider of the IRAs must act as a fiduciary for that purpose and therefore must act in the best interest of the IRA owner.
- The provider can collect a reasonable fee from the force-out IRA for those services and the fee will not be considered a prohibited transaction.
The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.
SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional . . . that is, plan sponsors are not required to adopt the provisions, but can adopt them if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.
This article is about an effort by Congress to protect the benefits of former employees with small account balances who have been forced out of plans into default rollover IRAs.