It is now easier for an employer to transfer 401(k) plan funds left behind by former workers to the individuals’ new employer’s plans. This comes as a result of a recent exemption adopted by the Department of Labor (DOL) – one granted with the intent to help high-turnover industry employers who often find themselves tasked with tracking and recording many small accounts, locating missing participants and handling uncashed distribution checks.
The new exemption should also prove helpful to employees who will find it much easier to bring their retirement assets from job to job, allowing them to better consolidate their savings.
Prior to this update, an employer could automatically roll over any former employee’s 401(k) balance of <$5,000 (without the employee’s consent) into an IRA. In fact, the employee would have to affirm to opt out of the transfer if they wished to prevent it.
With the new rule, an employer is able to participate in a convenient portability program which allows the transfer of a former employee’s 401(k) funds to his or her new employer’s 401(k) account. For this reason alone, the new DOL exemption will go a long way to prevent premature retirement account cash outs.