The Increasing Small Business Retirement Choices Act & Advancing 401(k) Auto-Portability

The Increasing Small Business Retirement Choices Act & Advancing 401(k) Auto-Portability

August 25, 2022

This article originally appeared on Alliance Benefit Group Southwest is a subsidiary of REDW LLC and acts as the firm’s trusted group of retirement plan advisors.

Increasing Small Business Retirement Choices  

Senators Jacky Rosen (Democrat, Nevada) and Tim Scott (Republican, South Carolina) have introduced the bipartisan Increasing Small Business Retirement Choices Act. This proposed legislation aims to reduce retirement plan costs for small businesses by allowing expenses to be reimbursed from plan assets. 

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This Act would amend the Employee Retirement Income Security Act of 1974 (ERISA) to allow small businesses to use retirement plan funds to pay expenses associated with implementing beneficial plan features, including automatic enrollment or contribution escalation. Currently, plan design expenses such as these are not charged to the plan but to the employer/plan sponsor.  

This proposed legislation has the potential to help small business owners provide a more robust, feature-rich retirement plan to participants without additional cost to the business owner.  

Advancing 401(k) Auto-Portability 

Changing jobs has become a more frequent occurrence for many Americans. Unfortunately, the Employee Benefit Research Institute (EBRI) estimates that approximately $92 billion in savings leaves the U.S. retirement system every year, as workers prematurely cash out their 401(k) accounts when changing jobs. 

However, new legislation known as theAdvancing Auto-Portability Act of 2022 has been introduced by Senators Sherrod Brown (Democrat, Ohio) and Tim Scott (Republican, South Carolina) to address this issue. It helps employees automatically take their 401(k) accounts with them when they change employment:  

  • 401(k) savings accounts may be automatically rolled over from a previous employer to a new employer.  
  • A new default in plan design may enable participants to opt out of having their balances automatically moved to their new employers’ plans when they change jobs instead of having to opt in. 

As a result, employees who change jobs and may have been tempted to cash out their 401(k) accounts and inadvertently incur early withdrawal penalties may be more likely to continue investing for retirement in their automatically rolled over 401(k) account.  

We welcome your questions on these legislative updates and how best to keep your participants informed as well. Reach out to your trusted ABG Southwest advisor, or Contact Us. 

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