The SECURE 2.0 Act, signed into law in December 2022, introduced significant changes to how plan sponsors can handle orphaned accounts and small balances from former participants. These provisions, which became effective in 2024, provide new flexibility for managing the growing challenge of "stranded" retirement accounts.
Key Changes for Plan Remediation
One of the most impactful changes is the increase in the automatic rollover threshold from $5,000 to $7,000. This means plan sponsors can now automatically roll over small balance accounts up to $7,000 into qualified IRAs without requiring participant consent.
This change addresses a persistent problem in the retirement industry: the administrative burden and cost of maintaining thousands of small accounts for participants who have left the company and may have lost track of their retirement savings.
Benefits for Plan Sponsors
For plan sponsors, the new provisions offer several advantages:
Reduced Administrative Burden: Managing small accounts requires the same compliance and administrative effort as large accounts. By enabling automatic rollovers for accounts up to $7,000, plan sponsors can significantly reduce their administrative workload.
Lower Costs: Every account in a retirement plan incurs recordkeeping fees. Reducing the number of small accounts can lead to meaningful cost savings.
Fiduciary Relief: Once an account is properly rolled over to a qualified IRA provider, the original plan sponsor is relieved of fiduciary responsibility for those assets.
What This Means for Your Organization
If your organization sponsors a retirement plan with a significant number of orphaned accounts, missing participants, or small balances, now is the time to review your options. Working with a qualified TPA that specializes in plan remediation can help you take advantage of the new provisions while ensuring full compliance with ERISA requirements.
At Todays Pension, we help plan sponsors navigate these changes and implement compliant solutions for cleaning up their plans. Our full TPA services include handling all participant notices, coordinating asset transfers, and assuming ongoing fiduciary responsibility.