Welcome to Part 8 of our series about the SECURE 2.0 Act of 2022 (SECURE 2.0) (our other articles may be found on our JL Employee Benefits Blog Post Page).  Among the many changes within SECURE 2.0 are two provisions that may help employers reduce the number of retirement plan accounts of terminated vested participants: (i) the retirement savings lost and found program and (ii) the increase in the threshold for mandatory plan distributions.  

RETIREMENT SAVINGS LOST AND FOUND (Section 303)

Section 303 of SECURE 2.0 requires the Department of Labor (DOL), in consultation with the Department of the Treasury, to create an online searchable lost and found database of retirement plans.  The database will enable plan participants, who might have lost track of their retirement plan, to search for the contact information of their plan administrator.  

The deadline for the DOL to establish the database is December 29, 2024.  Under yet-to-be-drafted regulations, plan administrators must furnish the DOL with information about the plan and terminated plan participants for plan years beginning after December 31, 2023.

UPDATING DOLLAR LIMIT FOR MANDATORY DISTRIBUTIONS (Section 304)

Current law permits a retirement plan, without participant consent, to cash out a participant who had a distributable event if the participant’s account balance is $5,000 or less.  Section 304 of SECURE 2.0 increases to $7,000, the threshold at which plans may automatically cash out a participant, effective for distributions made after December 31, 2023.  This change is optional and may require a plan amendment.

Before an employer chooses to raise the mandatory distribution limit on its retirement plan, it should consider how it might affect the fees of its service provider.  For example, raising the cash-out threshold may be appropriate if fees increase with an increase in plan assets or the number of plan accounts.  However, an increase in the threshold might not be warranted in certain fee arrangements, such as where the fee rate decreases as plan assets increase.