Mere days after publishing a request for comments on a proposed exemption, the Department of Labor has now issued an advisory opinion (AO) regarding a specific auto portability program.
The DOL advisory opinion, dated Nov. 5, 2018, outlines the particulars of a program developed by the Retirement Clearinghouse, LLC (RCH). Of particular note, the AO clarifies that neither the plan sponsor of the former employer nor the new employer would be considered a fiduciary in connection with a decision to transfer the individual’s default IRA into the new employer’s plan, nor would have any involvement or responsibility for the decision by individuals in that program to transfer those IRA assets into the plan of a new employer.
The AO, which addresses fiduciary status, and a separate proposed exemption published Nov. 7 to grant relief from ERISA’s prohibited transaction restrictions come via a request from RCH.
The AO does state that the decision by a plan sponsor/fiduciary to participate in the RCH Program is a fiduciary decision, and one that — as all such decisions must — be prudent and solely in the interest of plan participants and beneficiaries. As such, the AO reminds plan fiduciaries considering the RCH Program that they are “…responsible for ensuring that the RCH Program is a necessary service, a reasonable arrangement, and the compensation received is no more than reasonable within the meaning of ERISA section 408(b)(2) and Code section 4975(d)(2) (including the Department’s implementing regulations).” That means, the AO notes, that “the responsible plan fiduciaries must evaluate the package of services and separate service providers that are part of the RCH Program and conclude that the services, including the portability services, are appropriate and helpful to carrying out the purposes of the plan, and that the compensation paid or received by the service providers is no more than reasonable taking into account the services provided and available alternatives,” as well as to “regularly monitor the arrangement and periodically ensure that the plan’s continued participation in the RCH Program is consistent with ERISA’s standards.”
Fiduciaries of the new employer’s plan would, of course, be responsible for determining whether the roll-in of assets from the default IRA is consistent with plan terms and for accepting the roll-in and allocating the assets to investment alternatives in the new plan. However, the AO clarifies that those actions do not cause the fiduciaries of the new employer's plan to exercise fiduciary authority in connection with RCH's separate decision to rollover the IRA assets into the new employer plan.
Of course, the DOL’s advisory opinion applies specifically to RCH’s program and those plan sponsors and recordkeepers that choose to work with the program. But similar to the IRS’s recent private letter ruling regarding matching 401(k) contributions for student loan repayments, the opinion could open the door to broader acceptance and adoption of auto portability programs.
Fiduciary Status of RCH
With respect to fiduciary status of RCH, the AO advises that, absent affirmative consent of the IRA owner/participant, RCH acts as a fiduciary in deciding to transfer the individual’s RCH default IRA to the individual’s new employer plan.
In addition, it notes that an individual’s failure to respond to the RCH program communications about default transfers is not tantamount to affirmative consent by the participant/IRA owner to default transfers to the new employer’s plan and does not relieve RCH from fiduciary status and responsibilities.
Similarly, the AO explains that, absent affirmative consent of the IRA owner/participant, in situations where a default IRA maintained by a third-party recordkeeper is transferred to an RCH default IRA acting as a conduit to facilitate the transfer to a new employer’s plan, RCH acts as a fiduciary in directing the transfer of the individual’s default IRA to the RCH default IRA and subsequently to the new employer’s plan.
In an accompanying statement, RCH notes that the U.S. retirement system is facing a cash-out crisis. The firm explains that each year millions of people cash out their 401(k) savings, in large part due to the complexity of the processes required to take their accounts with them when they change jobs.
Moreover, it notes that the cash-out crisis is exacerbated by the fact that the American workforce is more mobile than ever, citing EBRI estimates that the average American will hold nearly 10 jobs before retirement.