5624 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

1Public Law 117–328, Dec. 29, 2022, Division T. 

2 2021 Form 5500 Data, U.S. Department of Labor. 

3Although the Department believes this body of 

plans is the one primarily relevant for purposes of 

the application of the statutory exemption, the 

Department notes that additional defined 

contribution plans that do not file a Form 5500 or 

Form 5500–SF and certain defined benefit plans are 

eligible to make mandatory distributions. See the 

regulatory impact analysis sections in this 

document for a discussion of the plans and 

participants impacted by this proposed regulation. 

4Code sections 411(a)(11) and 417(e). See Code 

section 411(a)(11)(D) for circumstances where the 

amount of a distribution may be greater than $5,000 

if a participant made a previous roll-in to a plan 

from an IRA. In such circumstances, the roll-in 

funds are not considered in determining the $5,000 

vested accrued balance, so a larger amount of assets 

could be subject to a mandatory distribution under 

the terms of the plan. 

5See SECURE 2.0 Act Sec. 304, updating dollar 

limit for mandatory distributions. 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2550 

RIN 1210–AC21 

Automatic Portability Transaction 

Regulations 

AGENCY: Employee Benefits Security 

Administration (EBSA), Labor. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains a 

proposed rule that would implement the 

statutory prohibited transaction 

exemption under section 4975 of the 

Internal Revenue Code (Code) for 

certain automatic portability 

transactions. Section 120 of the SECURE 

2.0 Act of 2022 amended Code section 

4975 to add a statutory exemption for 

the receipt of fees and compensation by 

an automatic portability provider for 

services provided in connection with an 

automatic portability transaction. 

Specifically, Code section 4975(d)(25) 

provides prohibited transaction relief if 

the conditions set forth in Code section 

4975(f)(12) are met. The Department of 

Labor is proposing this regulation 

because, with certain exceptions not 

relevant here, section 102 of 

Reorganization Plan No. 4 of 1978 

transfers the authority of the Secretary 

of the Treasury to issue certain 

regulations, rulings, opinions, and 

exemptions under Code section 4975 to 

the Secretary of Labor. Consistent with 

this transfer of authority, Congress 

authorized and directed the Department 

of Labor to issue regulations under Code 

section 4975 to implement provisions of 

section 120 of the SECURE 2.0 Act. 

DATES: Comments on these proposed 

rules are due on March 29, 2024. 

ADDRESSES: EBSA encourages interested 

persons to submit their comments on 

these proposed rules online. You may 

submit comments, identified by RIN 

1210–AC21, by either of the following 

methods: 

Federal eRulemaking Portal: 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Mail: Office of Regulations and 

Interpretations, Employee Benefits 

Security Administration, Room N–5655, 

U.S. Department of Labor, 200 

Constitution Avenue NW, Washington, 

DC 20210, Attn: Automatic Portability 

Regulations RIN 1210–AC21. 

Instructions: All submissions must 

include the agency name and Regulatory 

Identifier Number RIN 1210–AC21 for 

this rulemaking. If you submit 

comments online, do not submit paper 

copies. All comments received will be 

posted without change on 

www.regulations.gov and www.dol.gov/ 

agencies/ebsa and will be made 

available for public inspection at the 

Public Disclosure Room, N–1513, 

Employee Benefits Security 

Administration, U.S. Department of 

Labor, 200 Constitution Avenue NW, 

Washington, DC 20210. 

Warning: Do not include any 

personally identifiable or confidential 

business information in your comment 

that you do not want publicly disclosed. 

Comments are public records that are 

posted online as received and can be 

retrieved by most internet search 

engines. 

Docket: Go to the Federal 

eRulemaking Portal at https://

www.regulations.gov for access to the 

rulemaking docket, including any 

background documents and the plainlanguage summary of the proposed rule 

of not more than 100 words in length 

required by the Providing 

Accountability Through Transparency 

Act of 2023. 

FOR FURTHER INFORMATION CONTACT: 

Scott Ness, Office of Regulations and 

Interpretations, Employee Benefits 

Security Administration, (202) 693– 

8500 or Joseph Brennan, Office of 

Exemption Determinations, Employee 

Benefits Security Administration, (202) 

693–8456. These are not toll-free 

numbers. 

SUPPLEMENTARY INFORMATION: 

A. Background Regarding Automatic 

Portability Transactions 

Section 120 of the SECURE 2.0 Act of 

2022 (SECURE 2.0 Act) 1 amended 

Internal Revenue Code (Code) section 

4975 to add a statutory prohibited 

transaction exemption for the receipt of 

fees and compensation by an ‘‘automatic 

portability provider’’ for services 

provided in connection with an 

‘‘automatic portability transaction.’’ 

Specifically, Code section 4975(d)(25) 

provides prohibited transaction relief if 

the conditions set forth in Code section 

4975(f)(12) are met. In the retirement 

plan context, portability refers to the 

process of transferring workers’ 

retirement savings from one taxadvantaged plan or account to another 

when their covered service with an 

employer terminates (e.g., from a 

traditional 401(k) plan account to a 

traditional individual retirement plan— 

such as an individual retirement 

account or annuity described in Code 

section 408(a) or (b) (IRA)—or from a 

Roth 401(k) plan account to a Roth IRA. 

As described in more detail below, the 

term ‘‘automatic portability transaction’’ 

means a transaction in which 

mandatory distributions pursuant to 

Code section 401(a)(31)(B)(i) from an 

employer-sponsored retirement plan to 

an IRA established on behalf of an 

individual are subsequently transferred 

to an eligible employer-sponsored plan 

in which such individual is an active 

participant, after such individual has 

been given advance notice of the 

transfer and has not affirmatively opted 

out of such transfer. According to the 

most recent Department of Labor 

(Department) annual report (Form 5500) 

data, there are an estimated 635,000 

defined contribution plans, covering an 

estimated 86.6 million participants with 

account balances totaling $9.3 trillion in 

assets.2 With the proliferation of these 

accounts, there is a particular need for 

this type of automatic portability 

solution to help ensure participants 

remain connected to their retirement 

savings when they change jobs.3

1. Mandatory Distributions of Small 

Account Balances 

Under the Code, qualified retirement 

plans are permitted to include 

provisions requiring an immediate 

distribution to a separating participant 

without the participant’s consent if the 

present value of the participant’s vested 

accrued benefit does not exceed $5,000 4

(for distributions made after December 

31, 2023, the $5,000 threshold is 

increased to $7,000).5 These 

transactions are generally referred to as 

‘‘mandatory distributions.’’ 

Code section 401(a)(31)(B) provides 

that a trust will not constitute a 

qualified trust unless the plan of which 

the trust is a part provides that: (1) if a 

mandatory distribution of more than 

$1,000 is to be made; and (2) the 

participant does not elect to have such 

distribution paid directly to an eligible 


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6Code section 401(a)(31)(B)(i) requires the 

transfer be made to an ‘‘individual retirement 

plan,’’ defined by Code section 7701(a)(37) as an 

individual retirement account described in Code 

section 408(a) and an individual retirement annuity 

described in Code section 408(b). See IRS Notice 

2005–5, 2005–1 C.B. 337, regarding the 

applicability of Code section 401(a)(31)(B) to 

retirement plans under Code sections 401(a), 401(k), 

403(a), 403(b), and 457(b) (https://www.irs.gov/irb/ 

2005-03_IRB). 

7 ;Code section 401(a)(31)(B)(i). 

8See 29 CFR 2550.404a–2; Code section 

401(a)(31)(B)(i); and Code section 402(f). 

9See 69 FR 58017 (Sep. 28, 2004). 

10 29 CFR 2550.404a–2(c)(3)(i). 

11This may be, but is not necessarily, a Safe 

Harbor IRA established in accordance with the 

Department’s regulations at 29 CFR 2550.404a–2 

because all Safe Harbor IRAs are generally Default 

IRAs, but not all Default IRAs are Safe Harbor IRAs. 

12The concept of ‘‘locate, match, and transfer’’ is 

discussed in more detail below. 

13The Department notes that Code section 

4975(f)(12) defines an automatic portability 

transaction with respect to an individual that has 

not affirmatively consented to the transfer. An 

individual who affirmatively consents may still 

have IRA assets rolled into a new plan through the 

same mechanisms, although it would not 

technically fall within the statutory definition. 

14See the discussion of AO 2018–01A, below. 

15Available at: https://www.dol.gov/sites/dolgov/ 

files/EBSA/about-ebsa/our-activities/resourcecenter/advisory-opinions/2018-01a.pdf. 

16See 83 FR 55741 (Nov. 7, 2018) (proposed 

exemption) and 84 FR 37337 (July 31, 2019) 

(granted exemption). 

17AO 2018–01A (Nov. 18, 2018). 

retirement plan or to receive the 

distribution directly, then (3) the plan 

administrator must transfer such 

distribution to an IRA of a designated 

trustee or issuer.6 These distributions 

are referred to as ‘‘automatic rollovers of 

mandatory distributions.’’ Code section 

401(a)(31)(B)(i) requires the plan 

administrator to notify the participant in 

writing, either separately or as part of 

the notice required under Code section 

402(f), that the participant may transfer 

the distribution to another IRA.7 Code 

section 402(f)(1)(A) requires plan 

administrators to provide a participant 

with a written notice within a 

reasonable period of time before making 

an automatic rollover of a mandatory 

distribution explaining, among other 

things, the following: (1) the Code 

provisions under which the participant 

may elect to have the distribution 

transferred directly to an eligible 

retirement plan and that if an election 

is not made, such automatic rollover of 

a mandatory distribution is subject to 

the provisions of Code section 

401(a)(31)(B); (2) the provision requiring 

income tax withholding if the 

distribution is not directly transferred to 

an eligible retirement plan; and (3) the 

provisions under which the distribution 

will not be taxed if the participant 

transfers the distribution amount 

(including amounts withheld under 

Code section 3405) to an eligible 

retirement plan within 60 days of 

receipt.8

The Secretary of Labor (the Secretary) 

issued regulations in 2004 providing 

safe harbors for such automatic rollovers 

of mandatory distributions from a plan 

subject to Title I of the Employee 

Retirement Income Security Act (ERISA) 

which provide that (1) a plan 

administrator’s designation of an IRA to 

receive the automatic rollover and (2) 

the initial investment choice for the 

rolled-over funds will be deemed to 

satisfy the fiduciary responsibility 

provisions of ERISA section 404(a) if the 

safe harbor requirements are met.9

Specifically, plan administrators 

complying with the Department’s 

fiduciary safe harbor regulations must 

invest the former participant’s assets in 

an investment product designed to 

preserve principal and provide a 

reasonable rate of return.10 An IRA 

established pursuant to Code section 

401(a)(31)(B) and/or in compliance with 

the Department’s regulation is 

commonly referred to respectively as a 

‘‘Default IRA’’ or ‘‘Safe Harbor IRA.’’ 

2. Automatic Portability Transactions 

An automatic portability transaction 

as defined in Code section 

4975(f)(12)(A)(i) builds on the 

portability concept and is part of a 

larger framework for facilitating the 

movement of assets from one taxfavored retirement plan to another. The 

overall terms and details of an 

automatic portability framework would 

generally be memorialized in contracts 

with recordkeepers, plan sponsors, and 

the automatic portability provider. A 

comprehensive automatic portability 

framework includes three key 

components. First, there is a ‘‘transferout’’ plan that initiates a mandatory 

distribution. Second, there is an IRA 

established in accordance with Code 

Section 401(a)(31)(B) (a Default IRA) to 

receive (via a rollover) and hold the 

distributed funds.11 Third, there is a 

‘‘transfer-in’’ plan that receives the rollin distribution from the Default IRA 

when an IRA owner is matched with an 

account in an eligible employersponsored plan at a new employer. 

To roll in funds from an IRA to the 

transfer-in plan, the transfer-in plan 

must permit such roll-ins. Additionally, 

an automatic portability provider must 

have access to records for the Default 

IRA and transfer-in plan sufficient to 

make a match. The general concept of 

‘‘locate, match, and transfer’’ involves 

making queries of cooperating 

recordkeepers’ systems to determine if a 

Default IRA owner has become a 

participant in an employer-sponsored 

retirement plan through re-employment 

(i.e., the transfer-in plan).12 If the 

individual is matched with an account 

in the transfer-in plan, the automatic 

portability transaction is designed for 

the automatic portability provider to roll 

the individual’s IRA assets into the 

individual’s account in the transfer-in 

plan. Automatic portability transactions 

may be particularly important and 

helpful to workers who have lost 

contact with their retirement plans 

when they change jobs, cannot be 

located because the plan does not have 

updated address information or other 

contact information for separated 

employees, or refuse to respond to plan 

communications about their retirement 

account. When an automatic portability 

provider transfers funds from the 

transfer-out plan to a Default IRA 

without a participant’s active 

involvement, the risk of funds becoming 

lost or difficult to locate increases. 

Therefore, automatic portability 

transactions are intended to benefit 

participants and IRA owners that are 

unresponsive or considered missing.13

3. Current DOL Individual Prohibited 

Transaction Exemption for Automatic 

Portability Transactions 

When an automatic portability 

provider transfers assets from an IRA to 

a new employer’s plan without the IRA 

owner’s affirmative consent, the 

automatic portability provider is 

exercising fiduciary discretion for 

purposes of the prohibited transaction 

provisions of the Code.14 The 

assessment of a fee against the IRA, in 

turn, implicates the prohibited 

transaction provisions in Code section 

4975(c)(1). The Department first issued 

guidance regarding an automatic 

portability transaction before the 

enactment of the SECURE 2.0 Act. 

Retirement Clearinghouse (RCH) 

approached the Department in 2018 for 

sub-regulatory guidance and prohibited 

transaction exemptive relief regarding 

its multi-part automatic portability 

framework (the RCH Program). In 

response, the Department issued 

Advisory Opinion 2018–01A (AO 2018– 

01A) 15 and an administrative 

prohibited transaction exemption (PTE 

2019–02) 16 in connection with the RCH 

Program. AO 2018–01A concerned the 

status of certain parties involved in the 

RCH Program as ‘‘fiduciaries’’ within 

the meaning of ERISA section 3(21)(A) 

and Code section 4975(e)(3).17 In AO 

2018–01A, the Department stated that 

plan sponsors exercise discretion in 

their fiduciary capacity and would be 


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5626 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

18 Id. at 5. 

19 Id. at 5–6. 

20 29 CFR 2550.404a–2 and 2550.404a–3. 

21 Id. at 6. The Department notes that Code 

section 4975(f)(12) applies only to transfers made 

under Code section 401(a)(31)(B)(i), so the fiduciary 

relief provided in 29 CFR 404a–3 is not applicable 

to transactions covered by 4975(d)(25). 

22AO 2018–01A addressed the fiduciary status of 

an automatic portability provider but did not 

address whether a prohibited transaction would 

occur. 

23 84 FR 37337. 

24Emphasis added. 

25The statutory definition specifically references 

‘‘an individual retirement plan which is established 

on behalf of an individual and to which amounts 

were transferred under section 401(a)(31)(B)(i).’’ 

26These are plans described in clause (iii), (iv), 

(v), or (vi) of Code section 402(c)(8)(B). 

27 29 CFR 2550.404a–2. 

28 29 CFR 2550.404c–5. 

subject to the general fiduciary 

standards of ERISA when deciding 

whether to participate in the RCH 

Program. The advisory opinion further 

explained that, without the individual’s 

affirmative consent, RCH acted as a 

fiduciary within the meaning of Code 

section 4975(e)(3) in deciding whether 

to transfer the assets from an 

individual’s Default IRA to the 

individual’s new employer plan.18

Furthermore, the Department indicated 

that an individual’s failure to respond to 

RCH’s communications about a default 

transfer of the assets in the individual’s 

account to the new employer’s plan is 

not tantamount to affirmative consent 

by the individual to the default transfer 

and does not relieve RCH from fiduciary 

status and related responsibilities.19

The Department additionally stated in 

AO 2018–01A that, unlike the 

Department’s automatic safe harbor 

regulations,20 which pertain to the 

automatic rollover of an individual’s 

retirement plan mandatory distribution 

into an IRA, no similar statutory or 

regulatory provision provides relief 

from fiduciary responsibility for the 

‘‘default’’ transfer of assets from the 

Default IRA to a new employer’s plan.21

Therefore, it was necessary for RCH to 

receive a prohibited transaction 

exemption from the Department in order 

for RCH to receive a fee or other 

compensation when it exercised 

fiduciary authority to make the default 

transfer of assets from the Default IRA 

to a new employer’s plan.22 At RCH’s 

request, the Department issued PTE 

2019–02, an administrative exemption 

that provides such prohibited 

transaction relief for RCH.23 Due to the 

novelty of the RCH Program, the 

Department limited the relief provided 

in PTE 2019–02 to a five-year term, 

which expires on July 31, 2024. To 

receive prohibited transaction relief 

beyond the five-year term, RCH would 

need to submit an additional individual 

administrative exemption request to the 

Department. 

B. Overview of the SECURE 2.0 Act 

Statutory Exemption for Automatic 

Portability Transactions 

Section 120 of the SECURE 2.0 Act 

added a statutory exemption in Code 

section 4975 that allows an automatic 

portability provider to receive a fee in 

connection with executing an automatic 

portability transaction that largely 

mirrors the relief the Department 

granted RCH in PTE 2019–02. The 

availability of the statutory exemption 

to all automatic portability providers 

that meet its requirements generally 

eliminates the need for RCH, and other 

automatic portability providers, to 

request an administrative PTE for relief 

similar to the relief the Department 

granted in PTE 2019–02. Specifically, 

the statutory exemption in Code section 

4975(d)(25) provides a conditional 

prohibited transaction exemption from 

the restrictions in Code sections 

4975(c)(1)(D) and (E) for an automatic 

portability provider to receive fees and 

compensation for services provided ‘‘in 

connection with an automatic 

portability transaction’’ if the conditions 

set forth in Code section 4975(f)(12) are 

met.24

Code section 4975(f)(12)(A)(i) 

generally defines an automatic 

portability transaction as a transfer of 

assets from a Default IRA 25 to a transferin plan after the IRA owner has been 

given advance notice of the transfer and 

has not affirmatively opted out. The 

‘‘transfer-in’’ plan covered by the 

definition is any employer-sponsored 

retirement plan (other than a defined 

benefit plan) that is: a qualified trust, an 

annuity plan described in Code section 

403(a), an eligible deferred 

compensation plan described in Code 

section 457(b) which is maintained by 

an eligible employer described in Code 

section 457(e)(1)(A), or an annuity 

contract described in Code section 

403(b).26

Notably, the SECURE 2.0 Act 

amendment to the Code does not 

specifically include any references to a 

transfer-out plan (i.e., the plan engaging 

in the mandatory distribution and 

automatic rollover). As discussed above, 

the existence of a transfer-out plan is a 

necessary precursor to an automatic 

portability transaction, but the transferout transaction is already governed by 

mandatory distribution and automatic 

rollover provisions in the Code that are 

discussed above, and the Department 

already has provided conditional 

fiduciary and prohibited transaction 

relief for such transactions under its 

automatic rollover safe harbor 

regulations.27 Similarly, the general 

fiduciary principles regarding an 

individual’s default investments in the 

transfer-in plan and the Department’s 

regulations on qualified default 

investment alternatives will govern the 

transfer-in plan sponsor’s 

responsibilities once the assets are 

transferred from the individual Default 

IRA into the transfer-in plan.28

As noted, Code section 4975(d)(25) 

provides prohibited transaction relief if 

the conditions set forth in Code section 

4975(f)(12) are met. Specifically, Code 

section 4975(f)(12) and this proposed 

regulation require: 

• the automatic portability provider 

to acknowledge its fiduciary status with 

respect to the IRA; 

• that the automatic portability 

provider’s fees do not exceed reasonable 

compensation; 

• restrictions to be placed on an 

automatic portability provider’s use of 

plan participant and IRA owner data; 

• participation in the program to be 

available on the same terms for all 

eligible transfer-in plans; 

• the automatic portability provider 

to conduct at least monthly searches for 

transfer-in plan accounts; 

• the automatic portability provider 

to timely execute automatic portability 

transactions; 

• the automatic portability provider’s 

discretion to affect the timing or amount 

of the transfer pursuant to an automatic 

portability transaction to be limited; and 

• the automatic portability provider 

to retain records demonstrating it is 

complying with the exemption 

conditions, conducting an annual audit, 

and maintaining a website with a list of 

participating recordkeepers and the 

automatic portability provider’s fees. 

Section 120 of the SECURE 2.0 Act 

also provides that, not later than 12 

months after the date of its enactment, 

the Secretary shall issue such guidance 

as may be necessary to carry out the 

purposes of the amendments made by 

section 120, including regulations or 

other guidance which: 

1. Require an automatic portability 

provider to provide a notice to 

individuals on whose behalf the default 

IRA is established in advance of the pretransaction notice; 

2. Require an automatic portability 

provider to disclose to a responsible 

plan fiduciary information about the 


ddrumheller on DSK120RN23PROD with PROPOSALS2
Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 5627 

29See Public Law 117–328, Dec. 29, 2022, 

Division T, Sec. 120(c). 

30The Department expects to issue a final rule 

before the first annual audit would be required 

pursuant to the requirement in Code section 

4975(f)(12)(B)(xi)(II) under which an automatic 

portability provider must ‘‘conduct an annual audit, 

in accordance with regulations promulgated by the 

Secretary of Labor, of automatic portability 

transactions occurring during the calendar year to 

demonstrate compliance with this paragraph and 

any regulations thereunder and identify any 

instances of noncompliance therewith, and shall 

submit such audit annually to the Secretary of 

Labor, in such form and manner as specified by 

such Secretary.’’ However, because a final rule may 

be published part way through the first audit 

period, the Department specifically solicits 

comments on whether the final rule should provide 

an alternative pursuant to which the submission of 

the annual audit for the first year could be delayed 

and submitted together with the audit for the 

second year. See, for comparison, 29 CFR 2520.104– 

50—Short plan years, deferral of accountant’s 

examination and report. The Department also 

requests comment on whether certain aspects of 

this proposal that would be subject to audit review 

should have a specific delayed effective date 

because the aspect of the proposal may take 

additional time for an automatic portability 

provider to fully implement. 

provider’s fees, compensation, and 

services as required of covered service 

providers pursuant to DOL regulations 

under ERISA section 408 (i.e., 29 CFR 

2550.408b–2(c)); 

3. Require plans involved in the 

automatic portability transaction to fully 

disclose fees related to an automatic 

portability transaction in its summary 

plan description or summary of material 

modifications; 

4. Require plans involved in the 

automatic portability transaction to 

invest amounts received on behalf of a 

participant pursuant to an automatic 

portability transaction in the 

participant’s current investment 

election under the plan or, if no election 

is made or permitted, in the plan’s 

qualified default investment alternative 

under the Department’s Qualified 

Default Investment Alternative (QDIA) 

regulations (i.e., 29 CFR 2550.404c–5) or 

another investment selected by a 

fiduciary with respect to such plan; 

5. Prohibit or restrict the receipt or 

payment of third-party compensation 

(other than a direct fee paid by a plan 

sponsor which is in lieu of a fee 

imposed on an IRA owner) by an 

automatic portability provider in 

connection with an automatic 

portability transaction; 

6. Prohibit exculpatory provisions in 

an automatic portability provider’s 

contracts or communications with 

individuals disclaiming or limiting 

liability in the event that an automatic 

portability transaction results in an 

improper transfer; 

7. Require an automatic portability 

provider to take actions necessary to 

reasonably ensure that participant and 

beneficiary data is current and accurate; 

8. Limit the automatic portability 

provider’s use of data related to 

automatic portability transactions for 

any purpose other than the execution of 

such transactions or locating missing 

participants, except as permitted by the 

Secretary; 

9. Provide for corrections procedures 

in the event an auditor determines the 

automatic portability provider was not 

in compliance with the statute and 

related regulations, including deadlines, 

supplemental audits, and corrective 

actions which may include a temporary 

prohibition from relying on the statutory 

exemption; 

10. Ensure that participants and 

beneficiaries receive all the required 

notices and disclosures; and 

11. Make clear that the statutory 

exemption applies solely to the 

automatic portability transactions 

described in the statutory exemption, 

and, to the extent the Secretary deems 

necessary or advisable, specify how the 

application of the exemption relates to 

or coordinates with other statutory 

provisions, regulations, and 

administrative guidance.29

Some interested stakeholders have 

communicated to the Department that 

they have already developed products 

and established procedures for an 

automatic portability service and that 

they do not believe any further guidance 

from the Department is necessary to 

effectuate the purpose of section 120 of 

the SECURE 2.0 Act. However, the 

Department believes that regulations, as 

compared to some other form of 

guidance, are needed to implement 

section 120(c) of the SECURE 2.0 Act in 

a manner that addresses and reinforces 

the consumer protections in the above 

list of statutory conditions and 

requirements. Furthermore, the 

Department believes that these proposed 

regulations will provide a broader crosssection of interested and affected 

entities with the opportunity to formally 

comment on the proposal, whether 

implementing regulations are necessary, 

and whether elements of the proposed 

requirements should be modified or 

eliminated to best support Congress’ 

intent in passing the new statutory 

exemption. 

C. Prospective Effect of Implementing 

Regulations and Interim Interpretive 

Policy 

The Department is proposing that any 

final rule adopted based on this 

proposal would be effective 60 days 

after publication in the Federal Register 

and that the requirements of the final 

rule would have prospective 

applicability. The Department 

specifically solicits comments on 

whether there should be some delayed 

applicability date to allow for automatic 

portability providers and plan 

fiduciaries to make any changes to 

automatic portability programs or 

related contracts or arrangements that 

may be needed or desired in light of the 

final rule. This approach is intended to 

make it clear the statutory exemption is 

available in accordance with the 

effective date of the SECURE 2.0 Act 

while acknowledging that there may be 

a need to transition contracts or 

arrangements to meet specific 

requirements of the final rule. 

As noted above, section 120 of the 

SECURE 2.0 Act directed the Secretary 

to issue such guidance as may be 

necessary to carry out the purposes of 

the amendments made by section 120 

no later than 12 months after the date 

of the enactment of the Act. Compliance 

with the conditions and requirements in 

Code sections 4975(d)(25) and 

4975(f)(12) is an independent statutory 

obligation for parties seeking their 

prohibited transaction relief that is not 

dependent upon the issuance of 

regulations or guidance by the 

Department. For the period from 

publication of this proposed regulation 

until after the Department issues a final 

regulation or other applicable 

administrative guidance, automatic 

portability providers and plan 

fiduciaries are expected to comply with 

the requirements of Code sections 

4975(f)(12) and 4975(d)(25) using a good 

faith, reasonable interpretation of the 

law taking into account the list of 

consumer protection conditions and 

requirements in section 120(c) of the 

SECURE 2.0 Act.30 During that period, 

to the extent an automatic portability 

provider or plan fiduciary believes there 

is some uncertainty regarding whether 

the automatic portability program or the 

parties’ conduct in connection with the 

program complies with the statutory 

provisions, the Department expects that 

the provider or fiduciary will strictly 

adhere to the requirements in Code 

section 4975(f)(12) and act in a manner 

that furthers the financial interests of 

the affected plan, plan participant, or 

IRA owner taking into account the 

consumer protection conditions and 

requirements listed in section 120(c) of 

the SECURE 2.0 Act. 

D. Overview of the Proposed Regulation 

Certain provisions of ERISA Title I, 

such as the provisions on prohibited 

transactions, have parallel provisions 

enacted in Title II of ERISA and codified 

in the Code. When ERISA was passed, 


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5628 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

31As described in Code section 

4975(f)(12)(A)(i)(I). 

32This is generally when an individual fails to 

respond to notices and the automatic portability 

provider directs the transfer of assets and assesses 

fees. See AO 2018–01 for a more detailed 

description of fiduciary status in automatic 

portability arrangements. 

regulatory authority over Title I resided 

with the Secretary of Labor while 

regulatory authority over Title II resided 

with the Secretary of the Treasury. To 

rationalize the administration and 

interpretation of these parallel 

provisions, Reorganization Plan No. 4 of 

1978, 5 U.S.C. App., divided the 

interpretive and rulemaking authority 

between the Secretaries of Labor and of 

the Treasury, so that, in general, the 

agency with regulatory and interpretive 

responsibility for a given provision of 

ERISA Title I would also have 

regulatory and interpretive 

responsibility for the parallel provision 

in the Code. Among the sections 

transferred to the Department were 

certain of the prohibited transaction 

provisions (including exemptions) in 

Code section 4975. Title I’s prohibited 

transaction rules, 29 U.S.C. 1106–1108, 

apply to Title I-covered plans, and the 

Code’s corresponding prohibited 

transaction rules, 26 U.S.C. 4975, apply 

both to Title I-covered pension plans 

that are tax-qualified pension plans, as 

well as other specified tax-advantaged 

arrangements, including IRAs. 

Although the new automatic 

portability transaction prohibited 

transaction exemption appears only in 

Code section 4975 and directly pertains 

to transactions involving IRAs, the 

Secretary of Labor still retains 

regulatory authority over certain 

prohibited transaction provisions under 

Code section 4975, as provided in 

Reorganization Plan No. 4 of 1978. 

Consistent with that authority, section 

120 of the SECURE 2.0 Act directs the 

Secretary of Labor to issue regulations 

and guidance related to the new 

statutory exemption for automatic 

portability transactions. 

Therefore, the proposed regulation 

would add a new § 2550.4975f–12 to the 

Department’s fiduciary regulations at 29 

CFR part 2550. The proposed regulation 

tracks the requirements under Code 

section 4975(f)(12) that must be satisfied 

in order for the automatic portability 

transaction to be covered by the 

statutory prohibited transaction 

exemption in Code section 4975(d)(25). 

Paragraph (a) describes the general 

scope of the statutory exemption and 

regulation. Paragraph (b) sets forth the 

conditions an automatic portability 

provider must satisfy for a transaction to 

qualify as an ‘‘automatic portability 

transaction’’ and for the exemption to 

apply. Paragraph (c) sets forth proposed 

annual audit and correction procedure 

requirements. Paragraph (d) sets forth 

website requirements that must be met 

for automatic portability providers to 

satisfy the statutory exemption and 

proposed regulation. Paragraph (e) 

describes prohibitions on the automatic 

portability provider’s use of exculpatory 

provisions in contracts or 

communications disclaiming or limiting 

their liability in the event an improper 

transfer of assets in connection with an 

automatic portability transaction occurs. 

Paragraph (f) sets forth the record 

retention requirement automatic 

portability providers must meet to 

satisfy the statutory exemption and 

proposed regulation. Paragraph (g) 

defines certain terms used in the 

proposed regulation. 

1. Scope of Prohibited Transaction 

Relief 

The relief provided by Code section 

4975(d)(25) and the proposed 

exemption is limited to Code sections 

4975(c)(1)(D) and (E) for the receipt of 

fees and compensation by an automatic 

portability provider for services 

provided in connection with an 

automatic portability transaction and 

Code section 4975(c)(1)(F) for the 

receipt of fees by an automatic 

portability provider from a plan sponsor 

in lieu of fees imposed on an IRA 

owner. Neither the statutory exemption 

in Code section 4975(d)(25) nor the 

proposed regulation contains an 

exemption for other acts described in 

Code section 4975(c)(1)(D) and (E) 

(relating to the transfer to, or use by or 

for the benefit of, a disqualified person 

of the income or assets of a plan and to 

fiduciaries dealing with the income or 

assets of plans in their own interest or 

for their own account) that are not in 

connection with the automatic 

portability transaction. Additionally, 

neither the statutory exemption in Code 

section 4975(d)(25) nor the proposed 

regulation contains an exemption for 

acts described in Code section 

4975(c)(1)(F) (relating to fiduciaries 

receiving consideration for their own 

personal account from any party dealing 

with a plan in connection with a 

transaction involving the income or 

assets of the plan) except for the limited 

relief for a fee paid by a plan sponsor, 

noted above. Such acts described in 

Code sections 4975(c)(1)(D), (E), and (F) 

are separate transactions not described 

in Code section 4975(d)(25). Further, 

neither the statutory exemption in Code 

section 4975(d)(25) nor this proposed 

regulation contains an exemption from 

other provisions of the Code, such as 

section 401, or other provisions of law 

which may impose requirements or 

restrictions relating to the transactions 

that are exempt under Code section 

4975(d)(25). As defined in Code section 

4975(f)(12)(A)(ii) and in this proposed 

regulation, an automatic portability 

provider is a person, other than an 

individual, who executes the automatic 

portability transaction on the same 

terms to all transfer-in plans and Default 

IRAs that use the provider. 

The Department interprets the ‘‘in 

connection with’’ language from Code 

section 4975(d)(25) to include only 

those services and related fees and 

compensation that would not otherwise 

occur or be incurred if not for the 

automatic portability transaction or 

anticipation of a future automatic 

portability transaction. The Department 

requests comments on whether 

additional specificity regarding the 

types of services that are covered by 

Code section 4975(d)(25) should be 

included, for example, by a definition 

added to the regulations that identifies 

the types of services. Further, if a 

commenter believes more specificity 

would be helpful, the Department 

requests that the commenter include a 

proposed definition, list, or other 

identification of the services that should 

be covered. 

2. Acknowledgment of Fiduciary Status 

Code section 4975(f)(12)(B)(i) and this 

proposed regulation requires an 

automatic portability provider to 

acknowledge that it is a fiduciary with 

respect to the IRA in an automatic 

portability transaction.31 Pursuant to the 

statutory text authorizing the Secretary 

to specify the time and format of such 

an acknowledgment, paragraph (b)(1) of 

this proposed regulation requires the 

automatic portability provider to 

acknowledge in writing that it is a 

fiduciary as defined in Code section 

4975(e)(3) upon being engaged by a plan 

fiduciary, as well as in the required 

notices and disclosures, described 

below, to plan participants and IRA 

owners. This fiduciary 

acknowledgement is designed to ensure 

that the fiduciary nature of the 

relationship is clear to the automatic 

portability provider and responsible 

plan fiduciaries as well as to affected 

participants and IRA owners.32 The 

automatic portability provider’s 

acknowledgment of its fiduciary status 

may include a description of the scope 

of the fiduciary status of the automatic 

portability provider and may explain 

that, consistent with Code section 

4975(e)(3), the automatic portability 

provider is not a fiduciary under the 

Code’s definition with respect to any 


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assets or administration of the plan or 

IRA with respect to which the automatic 

portability provider does not (1) have 

any discretionary authority, 

discretionary control, or discretionary 

responsibility (2) exercise any authority 

or control, and (3) render investment 

advice for a fee or other compensation, 

nor have any authority or responsibility 

to render such investment advice. The 

Department notes that it is possible that 

the automatic portability provider may 

have fiduciary status under other laws, 

e.g., the Federal securities laws. The 

acknowledgment required by the 

exemption does not reach such status 

but the Department notes that the 

acknowledgment required by the 

exemption should not be presented in a 

way that misinforms or misleads 

individuals regarding potential 

fiduciary status under such other laws. 

3. Fees 

(a) Reasonable Compensation 

Subject to two exceptions described 

below, Code section 4975(f)(12)(B)(ii)(I) 

and this proposed regulation permit an 

automatic portability provider to receive 

fees and compensation for services 

provided in connection with the 

automatic portability transaction, 

provided that the fees and 

compensation do not exceed reasonable 

compensation. The proposed 

regulations incorporate the existing 

standard regarding reasonable 

compensation for the provision of 

services found at 26 CFR 54.4975–6(e). 

(b) Fee and Compensation Disclosure 

Requirement 

This proposed regulation mirrors the 

statutory text by requiring the automatic 

portability provider to disclose to a 

responsible plan fiduciary of the 

transfer-in plan the information that a 

service provider to the plan would be 

required to disclose under 29 CFR 

2550.408b–2(c). For purposes of this 

requirement, the disclosures would 

relate to the automatic portability 

provider’s services as an automatic 

portability provider and not other 

services that may be provided. For 

purposes of this disclosure requirement, 

the automatic portability provider will 

be considered to be a ‘‘covered service 

provider’’ under 2550.408b– 

2(c)(1)(iii)(A) and (B) providing services 

as a fiduciary and as a recordkeeper. 

Since the automatic portability provider 

would generally be precluded from 

receiving third-party compensation 

under other provisions of the proposal, 

the Department does not believe the 

provisions of 2550.408b–2(c) related to 

a covered service provider under 

2550.408b–2(c)(1)(iii)(C)—‘‘other 

services for indirect compensation’’— 

would be relevant. The Department 

seeks comments on whether there are 

particular compliance issues under 

2550.408b–2(c) for automatic portability 

providers that the Department should 

specifically address in a final rule. 

(c) Prohibition of Fees for Automatic 

Portability Transactions Involving a 

Plan of the Automatic Portability 

Provider or Its Affiliates 

The statute prohibits an automatic 

portability provider from receiving any 

fees or compensation in connection 

with an automatic portability 

transaction involving a plan which is 

sponsored or maintained by the 

automatic portability provider. In other 

words, the automatic portability 

provider may execute such transactions, 

but it may not receive fees for doing so. 

In the Department’s view, the statutory 

reference to the automatic portability 

provider in this circumstance should be 

read to include any affiliates of the 

automatic portability provider. 

Accordingly, paragraph (b)(2)(iv) of the 

proposed regulation mirrors the 

statutory provision by prohibiting an 

automatic portability provider from 

receiving any fees or compensation in 

connection with an automatic 

portability transaction involving a plan 

that is sponsored or maintained by the 

automatic portability provider but 

includes plans maintained by any of the 

automatic portability provider’s 

affiliates. 

(d) Prohibition on Receipt of ThirdParty Compensation in Connection With 

Automatic Portability Transactions 

Section 120(c)(5) of the SECURE 2.0 

Act provides the Secretary with the 

regulatory authority to prohibit or 

restrict the receipt or payment of thirdparty compensation (other than a direct 

fee paid by a plan sponsor that is in lieu 

of a fee imposed on an IRA owner) by 

an automatic portability provider in 

connection with an automatic 

portability transaction. The proposed 

regulation includes text that mirrors the 

statutory text allowing a direct fee to be 

paid by a plan sponsor if it is in lieu of 

a fee imposed on an IRA owner. The 

proposed regulation includes one 

exception to the general restriction on 

third-party compensation. Specifically, 

under the proposal, an automatic 

portability provider would be able to 

share a portion of its fee or 

compensation with another automatic 

portability provider as long as the 

overall fee paid, directly or indirectly, 

by the plan or IRA does not increase as 

compared to the fees disclosed in the 

description provided to the plan 

administrator and in the initial 

enrollment notice provided to the IRA 

owner. 

The third-party compensation 

restriction in the proposed regulation is 

limited to fees and compensation in 

connection with the automatic 

portability transaction and would not 

prevent an automatic portability 

provider from receiving fees for services 

provided to an IRA or employersponsored retirement plan that are in 

addition to services provided in 

connection with the automatic 

portability transaction. However, the 

prohibited transaction relief provided in 

Code section 4975(d)(25) applies only to 

fees and compensation received in 

connection with the automatic 

portability transaction. The automatic 

portability provider would need to rely 

upon other statutory or administrative 

exemptions if it receives fees for 

providing additional services that 

involve prohibited transactions. 

4. Data Usage and Protection 

Code section 4975(f)(12)(B)(iii) 

prohibits an automatic portability 

provider from using data it obtains in 

connection with automatic portability 

transactions for any purpose other than 

to execute the automatic portability 

transactions or locate missing 

participants as part of its automatic 

portability service, except as permitted 

by the Secretary. The automatic 

portability provider is specifically 

prohibited by the statute from marketing 

or selling data relating to the IRA or to 

the plan participants. Paragraph (b)(3) of 

the proposed regulation parallels the 

statutory language by not permitting the 

use of data for any purpose other than 

the execution of automatic portability 

transactions or locating missing 

participants. For purposes of the 

restriction on marketing or selling IRA 

data, the Department interprets this to 

include specific data regarding the IRA 

owner. The Department is not proposing 

any exceptions to this restriction. 

However, the Department welcomes 

comments on whether the regulations 

should permit use of data for other 

purposes, and, if it should, what those 

other purposes would be, whether 

allowing use of data for those purposes 

would provide a benefit to IRA owners 

and plan participants, and what 

regulatory protections should be applied 

to that use of the data. 

In support of the obligation to limit 

use of data, the proposed regulation 

provides that the automatic portability 

provider must take steps that a prudent 

fiduciary would take to safeguard plan 

participant and IRA data in its 


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33See generally Cybersecurity Program Best 

Practices at https://www.dol.gov/sites/dolgov/files/ 

ebsa/key-topics/retirement-benefits/cybersecurity/ 

best-practices.pdf; Online Security Tips at https:// 

www.dol.gov/sites/dolgov/files/ebsa/key-topics/ 

retirement-benefits/cybersecurity/online-securitytips.pdf; and Tips for Hiring a Service Provider with 

Strong Cybersecurity Practices at https://

www.dol.gov/sites/dolgov/files/ebsa/key-topics/ 

retirement-benefits/cybersecurity/tips-for-hiring-aservice-provider-with-strong-security-practices.pdf. 

possession or under its control.33 The 

proposal further would require, if data 

were improperly accessed, that the 

automatic portability provider take 

appropriate remedial actions to 

safeguard the data based on the 

sensitivity of the accessed data and the 

nature and severity of the breach. The 

Department seeks comment on whether 

the regulation should include specific 

data security requirements, such as a 

requirement to carry insurance to cover 

data breaches. 

5. Open Participation 

Paragraph (b)(4) of this proposed 

regulation parallels Code section 

4975(f)(12)(B)(iv) by requiring as a 

condition of the availability of the 

exemption that the automatic portability 

provider offer automatic portability 

transactions on the same terms to any 

transfer-in plan. This proposed 

requirement does not mean that fees can 

never change. Rather, at any given time, 

the fees paid for automatic portability 

transactions should be the same for any 

transfer-in plan that engages the 

automatic portability provider. 

Based on the general regulatory 

authority granted to the Secretary in 

section 120(c) of the SECURE 2.0 Act, 

the Department is also proposing that 

open participation would require that 

the automatic portability provider not 

restrict or limit the ability of an 

employer-sponsored retirement plan, 

IRA provider (including trustees under 

Code section 408(a), custodians under 

Code section 408(h), or issuers under 

Code section 408(b)), or recordkeeper to 

engage other automatic portability 

providers to execute automatic 

portability transactions. In proposing 

this requirement, the Department 

recognizes that numerous service 

providers that have existing systems for 

automatic rollovers of mandatory 

distributions may want to supplement 

their services with automatic portability 

transaction features. Plan fiduciaries or 

service providers may determine that 

there are cost-effective ways to integrate 

services of more than one automatic 

portability provider to increase the 

likelihood of successfully locating 

participant funds for transfer into the 

transfer-in plan. 

6. Notices 

(a) Notice to the Department 

The Department has an obligation 

under the statute to monitor and enforce 

the audit reporting requirements for 

automatic portability providers relying 

on the exemption, including deadlines 

for submitting the audit report to the 

Department. Accordingly, under the 

proposed regulation, within 90 calendar 

days of the date that the automatic 

portability provider begins operating an 

automatic portability transaction 

program that is intended to rely on 

prohibited transaction relief provided 

by section 4975(d)(25), the automatic 

portability provider must notify the 

Secretary at auto-portability@dol.gov 

that it is operating as an automatic 

portability provider in accordance with 

Code section 4975(d)(25). The automatic 

portability provider must report the 

legal name of each business entity 

relying upon the exemption and any 

name (e.g., trade or Doing Business As 

(DBA) name) under which the business 

entity may be operating. This 

notification needs to be updated to 

report a change to the legal or operating 

name(s) of the automatic portability 

provider that is relying upon the 

exemption. The automatic portability 

provider will have 90 calendar days to 

report a change to the legal or operating 

name. The automatic portability 

provider may also notify the Department 

if it is no longer operating in reliance 

upon the exemption. The notification 

requirement will allow the Department 

to monitor and enforce the audit report 

requirements. 

(b) Model Description of Automatic 

Portability Program for Use in Summary 

Plan Descriptions by Transfer-Out and 

Transfer-In Plans 

In the Department’s view, to comply 

with the summary plan description 

(SPD) content requirements in 29 CFR 

2510.102–2 that the SPD ‘‘shall be 

sufficiently comprehensive to apprise 

the plan’s participants and beneficiaries 

of their rights and obligations under the 

plan,’’ participating transfer-out plans 

and transfer-in plans subject to ERISA’s 

SPD requirements must include a 

description of the automatic portability 

program in the plan’s SPD. Further, 

section 120(c)(3) of the SECURE 2.0 Act 

provides the Secretary with authority to 

require a transfer-in plan to fully 

disclose fees related to an automatic 

portability transaction in its SPD or 

summary of material modifications 

(SMM) to the extent an SMM is used to 

fulfill this SPD disclosure requirement. 

The Department’s existing regulatory 

safe harbors for automatic rollovers by 

the transfer-out plan already require 

plan administrators for ERISA Title I 

plans to provide participants with an 

SPD or SMM that describes the plan’s 

automatic rollover provisions. The SPD 

or SMM also must include: (1) an 

explanation that the mandatory 

distribution will be invested in an 

investment product designed to 

preserve principal and provide a 

reasonable rate of return and liquidity; 

(2) a statement indicating how fees and 

expenses attendant to the IRA will be 

allocated (i.e., the extent to which 

expenses will be borne by the IRA 

owner alone or shared with the 

distributing plan or plan sponsor); (3) 

the name, address and phone number of 

a plan contact (to the extent not 

otherwise provided in the SPD or SMM) 

for further information concerning the 

plan’s automatic rollover provisions; 

and (4) the IRA provider and the fees 

and expenses attendant to the IRA. 

The Department proposes a 

requirement that the automatic 

portability provider provide the 

administrator of participating plans 

with a description of the automatic 

portability program, including fees and 

expenses, that the administrator could 

use in fulfilling its SPD obligations, as 

relevant. The Department requests 

comments on whether the final rule 

should set forth specific content 

requirements for an automatic 

portability provider model notice. 

(c) Notices to IRA Owner 

This proposed regulation specifies 

two notices an automatic portability 

provider is required to send to IRA 

owners before an automatic portability 

transaction is executed and one notice 

after the automatic portability 

transaction is executed, as described 

below. 

i. Initial Enrollment Notice 

Section 120(c)(1) of the SECURE 2.0 

Act authorizes the Secretary to require 

the automatic portability provider to 

provide a notice to IRA owners in 

advance of the pre-transaction notice 

specified in Code section 

4975(f)(12)(B)(v). Consistent with this 

authority, this proposed regulation 

includes a requirement that an 

automatic portability provider provide 

an ‘‘initial enrollment notice’’ to the IRA 

owner no later than 15 calendar days 

after the IRA is enrolled in an 

arrangement that includes an automatic 

portability transaction component. The 

Department assumes that the date of 

enrollment will generally be the date 

that an IRA is established in connection 

with a mandatory distribution. 

However, for IRAs that were established 


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prior to the existence of the new 

statutory exemption, or established and 

then later added into an automatic 

portability arrangement, the enrollment 

date may be a later date (e.g., when the 

IRA provider begins acting as an 

automatic portability provider or 

engages an automatic portability 

provider to begin including the IRA in 

a locate-and-match service). 

The Department requests comments 

regarding the 15-calendar-day timeframe 

for sending the initial enrollment notice, 

particularly if the automatic portability 

provider is not the provider of the IRA. 

In this regard, the Department requests 

comments about the process by which 

IRAs that are not established with or 

provided by the automatic portability 

provider would engage an automatic 

portability provider and how the 

automatic portability provider would 

ensure that such a notice would be 

provided. 

The Department proposes that the 

initial enrollment notice would include 

a variety of information regarding the 

nature of the automatic portability 

transaction and additional aspects of the 

IRA arrangement that are required to be 

included in the pre-transaction notice, 

discussed below. The Department 

anticipates that this notice requirement 

could be satisfied by including the 

information specified in proposed 

paragraph (b)(5)(iv) in the notice 

required under Code section 

401(a)(31)(B) upon the establishment of 

a Default IRA. 

ii. Pre-Transaction Notice 

Paragraph (b)(5)(iv) of the proposed 

regulation incorporates the statutory 

provisions of Code section 

4975(f)(12)(B)(v) requiring the automatic 

portability provider to provide a pretransaction notice to the IRA owner at 

least 60 days before an automatic 

portability transaction occurs with 

information describing the automatic 

portability transaction, fees to be 

received in connection with the 

transaction, the right to elect not to 

participate in an automatic portability 

transaction, distribution options, 

deadlines for making elections, a 

telephone number for the automatic 

portability provider, and the right to and 

procedures for designating a beneficiary. 

The proposed regulation provides 

additional clarification regarding the 

timing of the pre-transaction notice by 

requiring that the notice be sent no 

earlier than 90 days in advance of the 

automatic portability transaction. This 

is intended to ensure that the notice is 

sent sufficiently close to the actual 

execution of the automatic portability 

transaction so that the assets of the IRA 

do not remain there for an unreasonable 

period waiting to be rolled-in to the 

transfer-in plan. 

The Department seeks comments on 

the proposed pre-transaction notice and 

whether additional information should 

be required. The Department is 

particularly interested in comments 

regarding whether specific information 

should be provided to the IRA owner 

explaining the significance of 

transferring assets into an employersponsored plan as opposed to retaining 

those assets in an IRA, as well as any 

plain language examples to help the IRA 

owner better understand the various 

aspects of an automatic portability 

arrangement. Relatedly, the Department 

requests comment on whether model 

disclosures or model language for the 

pre-transaction notice would be helpful 

and encourages commenters who 

support a model disclosure or model 

language, model charts, or other formats 

submit suggestions for the model 

language, chart or format they believe 

would help ensure readability and 

accessibility for the target audience. The 

Department also requests comment on 

whether a final rule should specify a 

minimum amount of time that the IRA 

owner has to make an election to opt out 

of the automatic portability transaction, 

e.g., no sooner than 10 days before the 

anticipated execution of the automatic 

portability transaction identified in the 

pre-transaction notice. 

iii. Post-Transaction Notice 

This post-transaction notice, which 

would occur after a transfer-in plan 

receives an individual’s IRA funds, is 

the last notice that the automatic 

portability provider would be required 

to provide to the IRA owner or plan 

participant. Paragraph (b)(5)(v) of this 

proposed regulation incorporates the 

statutory requirements in 

4975(f)(12)(B)(vi). The statute requires 

that no later than three business days 

after the completion of an automatic 

portability transaction, the automatic 

portability provider shall provide notice 

to the IRA owner of the actions taken by 

the automatic portability provider with 

respect to the IRA. The statute also 

requires the notice to include all 

relevant information regarding the 

location and amount of any transferred 

assets, a statement of fees charged 

against the IRA or transfer-in plan 

account in connection with the transfer, 

and a contact phone number for the 

automatic portability provider. 

The proposed regulation provides 

some minor clarifying language 

intended to explain the Department’s 

view regarding the information needed 

to satisfy the statutory language. For 

instance, the proposed regulation adds 

that (1) a description of the actions 

taken by the automatic portability 

provider specifically includes that the 

individual was matched with an 

account in a new employer plan, (2) 

relevant information regarding the 

amount of transferred assets includes 

the name of the employer and name of 

the plan where the assets were 

transferred, and (3) the telephone 

number required by the statutory text is 

a customer service telephone number. 

The Department requests comment on 

whether model disclosures or model 

language for the post-transaction notice 

would be helpful and encourages 

commenters to submit language or 

formats they believe would help ensure 

readability and accessibility for the 

target audience. 

(d) Consolidation of Automatic 

Portability Provider Notices With Other 

Disclosures 

The Department understands that an 

automatic portability provider may also 

be the designated provider of Default 

IRAs for a transfer-out plan and may be 

providing notices required by the Code 

and/or the Department’s Safe Harbor 

Regulation. To the extent that the 

automatic portability provider has been 

engaged to provide notices to 

participants in connection with 

mandatory distributions on behalf of 

employer-sponsored plans, the notices 

and disclosures to individuals required 

by the statutory exemption and this 

proposed regulation would not have to 

be provided separately. However, the 

automatic portability provider should 

take care to ensure that the information 

required by the notice provisions to 

individuals in this proposed regulation 

is clearly displayed to reduce possible 

confusion with other provided 

information. 

(e) Accessibility of Disclosures to 

Participants and IRA Owners 

Paragraph (b)(5)(vi) of this proposed 

regulation parallels the statutory text of 

Code section 4975(f)(12)(B)(vii) by 

requiring all required notices to 

participants and IRA owners to be 

written in a manner calculated to be 

understood by the average person and 

not include inaccurate or misleading 

statements. The proposed regulation 

includes provisions intended to clarify 

and explain this requirement. In the 

Department’s view, the idea of an 

‘‘average person’’ in the context of 

understanding the notices under the 

exemption should be read as the average 

person receiving the notices rather than 

an abstract concept of an average person 

at large. Accordingly, the proposed 


ddrumheller on DSK120RN23PROD with PROPOSALS2
5632 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

34The Department would consider it misleading, 

for example, for the automatic portability provider 

to include in notices to individuals any exculpatory 

clauses or indemnification provisions that are not 

permitted under this proposed regulation or by 

applicable law. 

35 29 CFR 2520.102–2. 

36See, e.g., 29 CFR 2590.715–2715 and 2590.715– 

2719(e). 

regulation speaks in terms of the average 

intended recipient of the notices. The 

proposal also specifies that the 

disclosures must be accurate, not 

misleading,34 and sufficiently 

comprehensive to apprise the individual 

of their rights and obligations under the 

automatic portability program, must not 

be formatted to have the effect of 

misleading, misinforming, or failing to 

inform the recipient, and be written in 

a culturally and linguistically 

appropriate manner (see discussion 

below). In fulfilling these requirements, 

the proposed regulation requires the 

automatic portability provider to 

exercise considered judgment and 

discretion by taking into account such 

factors as the level of comprehension 

and education of the typical intended 

recipient and the complexity of the 

terms of the program. Consideration of 

these factors will usually require the 

limitation or elimination of technical 

jargon and of long, complex sentences, 

the use of clarifying examples and 

illustrations, the use of clear cross 

references, and a table of contents. 

These proposed requirements are 

modeled on the Department’s regulation 

governing the style and format of SPDs 

that plan administrators are required to 

provide plan participants and 

beneficiaries.35

(f) Culturally and Linguistically 

Appropriate Standards for Required 

Notices and Disclosures to Participants 

and IRA Owners 

The proposed regulation would 

require that notices and disclosures to 

participants and IRA owners be 

provided in a culturally and 

linguistically appropriate manner in 

certain situations. The proposal 

essentially adopts the ACA standard for 

group health benefit notices.36

Specifically, if the address of a recipient 

of a required notice or disclosure is in 

a county where 10 percent or more of 

the population is literate only in the 

same non-English language, the notice 

or disclosure must include a prominent 

statement in the relevant non-English 

language about the availability of 

language services. The automatic 

portability provider would also be 

required to provide a verbal customer 

assistance process in the non-English 

language and provide written notices in 

the non-English language upon request. 

(g) Ensuring Participants and IRA 

Owners Receive Notices 

Section 120(c)(10) of the SECURE 2.0 

Act authorizes the Secretary to issue 

regulations to ensure that the 

participants and IRA owners, ‘‘in fact, 

receive all required notices and 

disclosures.’’ Furthermore, Section 

120(c)(7) of the SECURE 2.0 Act grants 

the Secretary regulatory authority to 

require the automatic portability 

provider ‘‘to take actions necessary to 

reasonably ensure that participant and 

beneficiary data is current and 

accurate.’’ To this end, paragraph 

(b)(5)(vii) of the proposed regulation 

would require the automatic portability 

provider to adopt and implement 

prudent policies and procedures to 

ensure that it obtains individual 

participant and IRA owner data 

necessary to effectively administer the 

automatic portability program and that 

the participant and IRA owner data in 

its possession or control is current and 

accurate. The proposed regulation also 

specifies that notices and disclosures to 

participants and IRA owners must be 

made using methods that satisfy the 

disclosure requirements in 29 CFR 

2520.104b–1(b). The regulation at 29 

CFR 2520.104b–1(b) provides a general 

standard that covered materials shall be 

furnished using ‘‘measures reasonably 

calculated to ensure actual receipt of the 

material by plan participants, 

beneficiaries and other specified 

individuals.’’ The Department requests 

comments on how an automatic 

portability provider would handle 

undeliverable mail and whether specific 

additional regulatory protections should 

be established for individuals with 

respect to whom the automatic 

portability provider has received 

returned mail. The Department also 

invites comments on whether the 

regulation should specifically address 

electronic disclosure of notices and 

disclosures under the exemption, 

including how to deal with 

undeliverable electronic notices. 

7. Frequency of Searches 

The proposed regulation parallels the 

Code section 4975(f)(12)(B)(viii) 

requirement that the automatic 

portability provider query on at least a 

monthly basis whether any individual 

with an IRA has an account in a 

transfer-in plan. The Department 

believes that verification of the 

information used in connection with 

performing searches is important to 

carrying out the purposes of the 

statutory exemption. Accordingly, 

under the proposal, the automatic 

portability provider must perform 

ongoing participant address validation 

searches via automated checks of (1) 

National Change of Address records, (2) 

two separate commercial locator 

databases, and (3) any internal databases 

maintained by the automatic portability 

provider. If a valid address is not 

obtained from the automated checks, the 

automatic portability provider must also 

perform a manual internet-based search. 

The proposal would require these 

verification steps to be performed at 

least twice in the first year an account 

is entered into the automatic portability 

provider system and once a year 

thereafter. The Department invites 

comments on whether additional or 

different verification steps should be 

required and on whether a final 

regulation should specifically list other 

information to be used in the searches 

that may aid in validating a match, for 

example, beneficiary information. In the 

Department’s view, the statutory 

exemption’s description of the search 

requirement envisions the automatic 

portability provider taking reasonable 

steps to verify the accuracy of the 

information used for conducting the 

required searches. 

The Department requests comment on 

whether the final regulations should 

permit the query to be performed by a 

partnering recordkeeper in addition to 

the automatic portability provider and 

how the automatic portability provider 

would share information with 

recordkeepers for purposes of running 

the query. If the Department permits 

this under the final regulations, the 

Department anticipates that the ultimate 

obligation to ensure the required 

searches are performed would remain 

with the automatic portability provider. 

The Department also requests comment 

on whether there should be specific 

parameters or obligations for partnering 

recordkeepers if they are permitted to 

run the queries. Finally, if any 

commenter believes partnering 

recordkeepers should be permitted to 

run queries, the Department requests 

any additional information that would 

support the need and rationale for 

permitting this under a final regulation. 

8. Monitoring Transfers 

The Department believes proper 

monitoring of automatic portability 

transactions by the transfer-in plan is 

also critical to ensuring the successful 

execution of the transactions, and, 

accordingly, the proposal includes a 

monitoring requirement. The 

Department believes general prudence 

obligations would require such 

monitoring but is including this 


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requirement in the proposed regulation 

pursuant to the general regulatory 

authority provided to the Department in 

section 120(c) of the SECURE 2.0 Act 

and the authority transferred to the 

Secretary under section 102 of 

Reorganization Plan No. 4 of 1978. 

Paragraph (b)(7) of the proposed 

regulation requires that the automatic 

portability provider ensure that each 

transfer-in plan for whom the automatic 

portability provider performs automatic 

portability transactions designates a 

plan official responsible for monitoring 

transfers into the plan and confirming 

that amounts received on behalf of a 

participant are invested properly. Under 

the proposal, amounts received would 

be deemed to be invested properly if 

made according to the participant’s 

current investment election under the 

plan or, if no election is made or 

permitted, in the plan’s qualified default 

investment alternative under 29 CFR 

2550.404c–5 or in another investment 

selected by a fiduciary with respect to 

such plan. 

9. Timeliness of Execution 

Code section 4975(f)(12)(B)(ix) 

requires timely execution of transfers by 

requiring the automatic portability 

provider to transfer the liquidated 

account balance of the IRA as soon as 

practicable. Paragraph (b)(8) of the 

proposed regulation incorporates the 

statutory text and includes provisions 

intended to clarify the statutory 

requirement. First, the proposal clarifies 

the timeliness of execution is measured 

from the date after the final deadline 

passes for the affected individual to 

affirmatively elect not to participate in 

the transaction, as specified in the pretransaction notice. The proposed 

regulation also provides that the 

automatic portability provider must 

follow timeframes formally established 

in policies and procedures, discussed in 

more detail below. The proposal does 

not include a specific timeframe for 

what would be considered ‘‘as soon as 

practicable’’ but requests comments on 

whether the final rule should include 

such a specific timeframe or other 

clarification of the standard. 

10. Limitation on Exercise of Discretion 

and Policies and Procedures 

Code section 4975(f)(12)(B)(x) 

provides that the automatic portability 

provider will neither have nor exercise 

discretion to affect the timing or amount 

of the transfer pursuant to an automatic 

portability transaction other than to 

deduct the appropriate fees. Paragraph 

(b)(9) of the proposed regulation 

incorporates the statutory limitation on 

discretion and expands upon the 

statutory text by specifying that an 

automatic portability provider will be 

deemed to satisfy the limited discretion 

requirement if it establishes, maintains, 

and follows policies and procedures 

regarding the process for executing 

automatic portability transactions. The 

policies and procedures must set 

specific standards and timeframes that 

are equally applied to all automatic 

portability transactions. The Department 

is proposing the policies and procedures 

to operationalize the limited discretion 

standard in accordance with the general 

regulatory authority granted to the 

Secretary under section 120(c) of the 

SECURE 2.0 Act and the authority 

transferred to the Secretary under 

section 102 of Reorganization Plan No. 

4 of 1978. The policies and procedures 

are intended to ensure that the 

automatic portability provider is acting 

in accordance with its obligations under 

the exemption and these regulations and 

consistently with the intent of the 

statutory exemption. The Department 

also believes the policies and 

procedures will ensure that there is 

appropriate operational documentation 

by the automatic portability provider to 

support the audit, described below. 

The policies and procedures must, at 

a minimum, specifically and prudently 

address: (1) the process to ensure that 

transfer-in plans designate a plan 

official that will be responsible for 

monitoring transfers into the plan due to 

automatic portability transactions; (2) 

the process and timing for liquidating 

the assets of the Default IRA to cash and 

closing the IRA; (3) the process for 

verifying and validating that the correct 

fees are withdrawn from the Default 

IRA; (4) the process and timing for 

transmitting assets to the transfer-in 

plan; (5) verifying the assets were 

received by the transfer-in plan; and (6) 

sending all notices to plan participants 

or individuals on whose behalf a Default 

IRA is established as required in this 

proposed regulation. 

11. Audit and Corrections 

(a) Audit and Audit Report 

Code section 4975(f)(12)(B)(xi) 

includes a requirement for an annual 

audit to be conducted in accordance 

with regulations promulgated by the 

Secretary. The statute requires that an 

audit be conducted that demonstrates 

compliance with Code section 

4975(f)(12) and any regulations 

thereunder and that identifies any 

instances of noncompliance with the 

statute or such regulations. The statute 

requires the automatic portability 

provider to submit a copy of the 

auditor’s report to the Secretary in such 

form and manner as specified by the 

Secretary. 

(b) Auditor and Auditor’s Report 

After consideration, the Department is 

proposing that the audit be an 

independently conducted audit to best 

ensure that the automatic portability 

provider is executing automatic 

portability transactions in a manner that 

is consistent with ERISA and that 

promotes the retirement security of 

workers. An auditor will be considered 

independent if: (1) the auditor is a 

person or an entity that the automatic 

portability provider does not own or 

control, and (2) the auditor does not 

derive more than two percent of its 

annual revenue from services provided 

directly or indirectly to the automatic 

portability provider or any of its 

affiliates. In addition, the auditor must 

have the appropriate technical training 

and proficiency necessary to carry out 

the audit. The Department invites 

comments regarding the two percent 

threshold. The Department believes the 

two percent threshold supports a 

presumption of independence but 

requests comment with supporting 

rationale if affected entities believe a 

higher threshold should be permitted. 

Additionally, the Department requests 

comment on what additional 

protections commenters would propose 

to support one or more higher 

thresholds. 

Paragraph (c) of this proposed 

regulation would also require the 

independent auditor to review the 

automatic portability provider’s policies 

and procedures as well as representative 

samples of the required disclosures and 

related automatic portability 

transactions sufficient for the auditor to 

make the required audit determinations 

and findings. The findings must be 

memorialized in a written audit report, 

which would include the following: (1) 

the number of completed automatic 

portability transactions during the audit 

period; (2) whether the required notices 

met the timing and content 

requirements of these regulations; (3) 

whether the required notices were 

written and delivered in a manner 

reasonably designed to ensure that 

affected individuals would both receive 

and understand the notices; (4) whether 

any required notices were returned as 

undeliverable and what steps were 

taken by the automatic portability 

provider to address undeliverable 

notices; (5) whether the appropriate 

transfer-in plan accounts received all 

the assets due as a result of the 

automatic portability transactions; (6) a 

summary of all fees charged by the 

automatic portability provider (and any 


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37Sec. 120(d)(1)(A)(i) uses the term ‘‘automatic 

cash outs’’ but the Department believes, based on 

the context, that it is referring to automatic rollovers 

of mandatory distributions as that term is used 

throughout this preamble. 

38The automatic portability provider may not 

have direct access to all the information identified 

in section 120(d) of the SECURE 2.0 Act if, for 

instance, the automatic portability provider is not 

the provider or custodian of all IRAs for which it 

will execute automatic portability transactions. 

affiliates) for services in connection 

with automatic portability transactions, 

including whether those fees increased 

since the last report; (7) whether the fees 

and compensation received by the 

automatic portability provider 

(including its affiliates) are consistent 

with the fees authorized by the 

appropriate fiduciaries and did not 

exceed reasonable compensation; (8) 

whether all requirements of section 

4975(f)(12) and these proposed 

regulations were satisfied with respect 

to: (a) the policies and procedures and 

(b) the transactions and disclosures that 

were reviewed; (9) a summary of 

compliance issues reported to or 

discovered by the auditor, the auditor’s 

recommendations, and the extent to 

which the automatic portability 

provider has addressed or is addressing 

the issues pursuant to the correction 

procedures; (10) any other 

recommendations from the auditor to 

improve the policies and procedures 

and overall execution of automatic 

portability transactions; and (11) a 

description of the auditor’s audit 

methodology. In order to assist the 

auditor in the review, the automatic 

portability provider is required to grant 

the auditor access to its automatic 

portability operations and records 

(including, as necessary, the operations 

and records of its affiliates) sufficient to 

allow the auditor to make the 

determinations and findings noted 

above. 

Section 120(d) of the SECURE 2.0 Act 

requires the Secretary to provide 

periodic reports to Congress that 

include a variety of information related 

to automatic portability transactions and 

portability arrangements more generally. 

The Department envisions that most of 

the information required for this report 

to Congress will come from information 

included in the audit reports filed by 

automatic portability providers. 

Therefore, the Department is proposing 

that the written audit report would also 

include: (1) the number of automatic 

rollovers of mandatory distributions 

from qualified plans into Default IRAs 

that are included in the automatic 

portability program; 37 (2) the number of 

completed automatic portability 

transactions; and (3) the number of 

Default IRAs separately in each of the 

following categories: (a) which have 

been transferred to designated 

beneficiaries, (b) for which the 

automatic portability provider is 

searching for next of kin due to a 

deceased IRA owner without a 

designated beneficiary, and (c) that were 

reduced to a zero balance while in the 

automatic portability provider’s 

custody. 

If the automatic portability provider 

does not have direct access to any 

information required to be included in 

the audit report, the automatic 

portability provider would be required, 

as a condition of its services, to obtain 

appropriate information from partnering 

recordkeepers and participating plans in 

their possession or control, on request 

from the automatic portability provider, 

so it can be provided to the independent 

auditor and incorporated into the audit 

report.38 The Department seeks 

comments on the availability of any 

information not otherwise directly 

accessible by the automatic portability 

provider and if there are any barriers to 

obtaining this information from 

participating recordkeepers or 

employer-sponsored plans. The 

Department also seeks comment on 

whether there are other readily available 

sources for such information that would 

be accessible to the Department. 

i. Timing of Audit Report & Certification 

This proposed regulation would 

require the independent auditor to 

complete the audit within 180 calendar 

days following the annual period to 

which the audit relates. The automatic 

portability provider must then submit a 

copy of the written audit report to the 

Department at auto-portabilityaudit@

dol.gov within 30 calendar days of 

completion. The automatic portability 

provider’s submission to the 

Department must also include a 

certification, under penalty of perjury, 

that the automatic portability provider 

reviewed the audit report and that, to 

the best of its knowledge at the time, it 

has addressed, corrected, or remedied 

any noncompliance or inadequacy, or 

has an appropriate written plan to 

address any such issues identified in the 

audit report. 

(c) Corrections 

Section 120(c)(9) specifically grants 

the Secretary authority to provide for 

correction procedures in the event the 

auditor determines the automatic 

portability provider was not in 

compliance with the statute and related 

regulations. To effectuate the intent of 

this provision, the Department is 

proposing three components for 

corrections. 

First, the Department is providing an 

opportunity for an automatic portability 

provider to make certain selfcorrections. Under paragraph (c)(9)(i), 

the Department would not consider a 

non-exempt prohibited transaction to 

have occurred due to a violation of the 

requirements of Code section 4975(f)(12) 

and these regulations with respect to a 

transaction, provided that either the 

violation does not result in investment 

losses to the Default IRA or the 

automatic portability provider made the 

IRA whole for any resulting losses. In 

order to self-correct in those situations, 

the automatic portability provider 

would be required to correct the 

violation and document the correction 

in writing within 30 calendar days of 

correction. The correction would only 

be permitted if it occurs no later than 90 

calendar days after the automatic 

portability provider learned of the 

violation or reasonably should have 

learned of the violation. Finally, all 

instances of noncompliance and 

accompanying corrections would be 

required to be reported in writing to the 

auditor and the auditor would have to 

agree that the transaction did not result 

in investment losses or that the IRA was 

made whole. The Department solicits 

comments on whether specific criteria 

should be included in the final rule on 

measuring investment losses and make 

whole requirements. 

The second component for corrections 

involves additional recommendations 

from the auditor. If the auditor 

determines that the automatic 

portability provider was not in 

compliance with any provision of Code 

section 4975(f)(12) or these regulations 

during the audit period, the auditor 

must identify the instances of 

noncompliance in the audit report along 

with its recommended corrections. An 

automatic portability provider would 

not be treated as having failed to comply 

with any provision of Code section 

4975(f)(12) or these regulations, 

provided it corrects any instance of 

noncompliance identified by the auditor 

as soon as reasonably practicable 

according to the auditor’s 

recommendations. 

The Department believes that the first 

two components for corrections will 

provide an automatic portability 

provider with additional incentive to 

take the audit process seriously, timely 

identify and correct violations of Code 

section 4975(f)(12) and these proposed 

regulations, and use the audit process to 

correct deficiencies in the automatic 

portability provider’s operations to 

avoid potential future violations, 


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39The Department does not expect that foreign 

crimes will arise frequently in connection with 

automatic portability providers, but if they do, 

impacted entities may contact the Department for 

guidance. Additionally, the Department requests 

comment regarding whether any additional process 

should be provided for foreign crimes before the 

Department imposes supplemental audits or 

corrective actions, particularly those foreign crimes 

that raise issues regarding their equivalence to a 

domestic crime. 

40A person or entity is an ‘‘affiliate’’ if, directly 

or indirectly (through one or more intermediaries) 

it controls, is controlled by, or is under common 

control with such person or entity; or is an officer, 

director, or employee of, or partner in, such person 

or entity. Unless otherwise specified, an ‘‘affiliate’’ 

refers to an affiliate of the automatic portability 

provider. 41The term ‘‘control’’ means the power to 

exercise a controlling influence over the 

management or policies of an entity or person other 

than an individual. 

penalties, losses to IRA owners/plan 

participants, and lawsuits. 

The third and final component for 

corrections would involve the Secretary 

requiring an automatic portability 

provider to submit to supplemental 

audits and corrective actions if 

significant compliance issues are 

uncovered. The Department is 

proposing the following scenarios 

involving the automatic portability 

provider or an affiliate under which the 

Secretary may impose additional 

corrective actions: (1) engaging in a 

systematic pattern or practice of 

violating any provision of section 

4975(f)(12) or an implementing 

regulation; (2) intentionally violating 

any provision of section 4975(f)(12) or 

an implementing regulation; (3) 

providing materially misleading 

information to the Secretary, Secretary 

of the Treasury, or the auditor in 

connection with automatic portability 

transactions; (4) a foreign or domestic 

criminal conviction involving or arising 

out of the conduct of the automatic 

portability program or any automatic 

portability transaction; or (5) a foreign 

(or foreign equivalent) 39 or domestic 

criminal conviction for any felony 

involving the following crimes: larceny, 

theft, robbery, extortion, forgery, 

counterfeiting, fraudulent concealment, 

embezzlement, fraudulent conversion, 

misappropriation of funds or securities, 

or conspiracy to commit any such 

crimes or a crime in which any of the 

foregoing crimes is an element. 

12. Automatic Portability Provider 

website 

The proposed regulation in paragraph 

(d) parallels the statutory language in 

Code section 4975(f)(12)(B)(xii) 

requiring the automatic portability 

provider to: (1) maintain a website 

which contains a list of recordkeepers 

with respect to which the automatic 

portability provider carries out 

automatic portability transactions and 

(2) list all fees paid to the automatic 

portability provider. Under the 

proposed regulation the list would have 

to include the fees and the identity of 

the party or account that is paying the 

particular fee. The proposal also 

requires that the website include the 

number of plans and participants 

covered by each recordkeeper. The 

Department solicits comments on 

whether other documents or materials 

should be required to be posted on the 

website, for example, a copy of the 

independent auditor’s audit report 

redacted as needed to protect 

confidential business information, if 

any, in the audit report. 

Because the Department anticipates 

that automatic portability providers may 

include a range of other services and 

information, customer support features, 

and functionalities in addition to 

automatic portability transactions, the 

proposal would also require the website 

to display automatic portability 

transaction-related information in a way 

that differentiates that information from 

other information or elements of the 

website (e.g., separately identifying the 

automatic portability transaction fees 

and services from fees and services in 

connection with establishing and 

custody of a Default IRA). 

The Department intends that these 

website disclosures and additional 

parameters will make it easier for plan 

sponsors to independently assess the 

overall cost of an automatic portability 

arrangement in connection with signing 

up for an automatic portability 

transaction service covered by the 

statutory exemption and this regulation. 

13. Limitations on Exculpatory 

Provisions 

Section 120(c)(6) of the SECURE 2.0 

Act specifically provides the Secretary 

with the authority to place limitations 

on exculpatory provisions due to an 

improper transfer of Default IRA assets. 

Therefore, the Department is proposing 

that the automatic portability provider 

may not include exculpatory provisions 

in its contracts disclaiming or limiting 

the automatic portability provider’s 

liability in the event that the automatic 

portability transaction results in an 

improper roll-in to the transfer-in plan. 

However, this requirement would not 

prohibit disclaimers for liability caused 

by an error, misrepresentation, or 

misconduct of a party independent of 

the automatic portability provider and 

its affiliates, or damages arising from 

acts outside the control of the automatic 

portability provider. Section 120(c)(6) of 

the SECURE 2.0 Act does not 

specifically address other exculpatory 

provisions. The Department requests 

comments on whether the prohibition 

on exculpatory provisions should be 

broader and include violations of the 

prohibited transaction provisions in 

Code section 4975 generally and ERISA 

in connection with any conduct of the 

automatic portability provider or an 

affiliate that is subject to Title I. 

14. Record Retention 

This proposed regulation incorporates 

the statutory language in Code section 

4975(f)(12)(B)(xi)(I) regarding record 

retention by requiring that an automatic 

portability provider maintain, for not 

less than six years, records sufficient to 

demonstrate compliance with the 

requirements of the statute and this 

proposed regulation and make them 

available to authorized employees of the 

Department and the Department of the 

Treasury within 30 calendar days of a 

written request. This proposal also 

includes clarifying language regarding 

the record retention requirement and its 

impact on the prohibited transaction 

relief provided by Code section 

4975(d)(25), which clarifying language 

the Department has frequently included 

in administrative prohibited transaction 

exemptions. First, the proposal provides 

that no prohibited transaction will be 

considered to have occurred if, solely 

because of circumstances beyond the 

control of the automatic portability 

provider, the records are lost or 

destroyed before the six-year period 

ends (e.g., due to a natural disaster). 

Second, an automatic portability 

provider’s failure to maintain the 

records necessary to determine whether 

the conditions of Code section 

4975(d)(25) and this regulation have 

been met will result in the loss of the 

relief provided under this exemption 

only for the transaction or transactions 

for which such records are missing or 

have not been maintained. Such failure 

does not affect the relief for other 

transactions if the automatic portability 

provider maintains records for such 

other transactions in compliance with 

the record retention requirements. 

15. Definitions 

The Department included three 

definitions in proposed paragraph (g). 

The proposed definition of ‘‘affiliate’’ is 

consistent with the Department’s 

definition of affiliate in many other 

regulations.40 Likewise, the definition of 

‘‘control’’ is intended to be consistent 

with the Department’s use of that term 

in other regulations.41 The definition of 

‘‘individual retirement plan’’ refers to 

an individual retirement account or 

annuity described in Code section 


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42As one example, should the Department define 

‘‘active participant’’ or is this term generally 

understood? 

43See 29 CFR 2550.404a–2(d); Final Rule on 

Fiduciary Responsibility Under the Employee 

Retirement Income Security Act of 1974 Automatic 

Rollover Safe Harbor, 69 FR 58018 (Sept. 28, 2004). 

44 Id. at 58019. 

45See ‘‘The Benefits of Mandatory Distributions,’’ 

A White Paper by Fred Reish and Bruce Ashton 

(2013)(available at https://fredreish.com/wpcontent/uploads/2013/03/The-Benefits-ofMandatory-Distributions-A-White-Paper-February2013_NEW.pdf). 

46Regulatory Planning and Review, 58 FR 51735 

(Oct. 4, 1993). 

47 Improving Regulation and Regulatory Review, 

76 FR 3821 (Jan. 21, 2011). 

48 5 U.S.C. 804(2) (1996). 

49 44 U.S.C. 3506(c)(2)(A) (1995). 

50 5 U.S.C. 601 et seq. (1980). 

51 2 U.S.C. 1501 et seq. (1995). 

52Federalism, 64 FR 43255 (Aug. 10, 1999). 

408(a) or 408(b). The Department 

requests comment on whether any other 

definitions may be necessary to provide 

additional clarity to the proposed 

regulation.42

E. Request for Public Comments 

The Department invites comments 

from interested persons on all facets of 

the proposed rule. Commenters are free 

to express their views not only on the 

specific provisions of the proposal as set 

forth in this document, but on any 

issues germane to the subject matter of 

the proposal. Comments should be 

submitted in accordance with the 

instructions at the beginning of this 

document. 

Without limiting the generality of the 

above request for comments, the 

Department requests comments on 

whether the rule should include 

provisions that specially address issues 

related to IRA beneficiaries. The 

statutory provisions envision an 

automatic portability transaction as a 

transfer of assets ‘‘made from an 

individual retirement plan which is 

established on behalf of an individual 

and to which amounts were transferred 

under section 401(a)(31)(B)(i)’’ to an 

eligible employer-sponsored retirement 

plan in which ‘‘such individual is an 

active participant.’’ The statutory 

provisions do not expressly reference 

moving funds for a beneficiary from a 

default IRA to an employer-sponsored 

plan in which the beneficiary 

participates. The statutory provisions 

similarly require notices to ‘‘the 

individual on whose behalf the 

individual retirement plan . . . is 

established.’’ Nonetheless, the 

Department notes the recordkeeping 

provisions in the statute expressly 

reference the automatic portability 

provider taking steps to ensure it has 

accurate beneficiary information and the 

statutory provisions on the required 

Report to Congress call for separate 

identification of IRAs transferred to 

designated beneficiaries and IRAs for 

which a next of kin is being identified 

after the death of the IRA owner without 

a designated beneficiary. Accordingly, 

the Department is interested in 

comments on whether the final 

regulation should address specific 

beneficiary issues, and, if the 

commenter believes it should, the 

Department asks that the commenter 

identify the issue or issues and include 

recommendations on how the issue or 

issues should be addressed in the 

regulation. 

The Department also specifically 

requests comments on exemptive relief 

for Default IRAs involving rollovers of 

mandatory distributions with a value of 

$1,000 or less. The proposal does not 

expressly include such mandatory 

distributions in light of the SECURE 2.0 

Act amendment of Code section 4975 

defining the term ‘‘automatic portability 

transaction’’ to mean a transaction in 

which mandatory distributions pursuant 

to Code section 401(a)(31)(B)(i) from an 

employer-sponsored retirement plan to 

an IRA established on behalf of an 

individual are subsequently transferred 

to an eligible employer-sponsored plan 

in which such individual is an active 

participant, after such individual has 

been given advance notice of the 

transfer and has not affirmatively opted 

out of such transfer. As noted elsewhere 

in this document, Code section 

401(a)(31)(B)(i) refers to distributions of 

nonforfeitable accrued benefits the 

present value of which is in excess of 

$1,000 but less than or equal to $7,000. 

The Department confronted a similar 

issue in implementing section 

657(c)(2)(A) of the Economic Growth 

and Tax Relief Reconciliation Act of 

2001 (EGTRRA), which directed the 

Department to issue regulations 

providing safe harbors under which (1) 

a plan administrator’s designation of an 

institution to receive the automatic 

rollover, and (2) the initial investment 

choice for the rolled-over funds would 

be deemed to satisfy the fiduciary 

responsibility provisions of section 

404(a) of ERISA. Section 657 of 

EGTRRA also referenced Code section 

401(a)(31)(B) automatic rollovers. 

However, in its final rule in 2004, the 

Department, in response to public 

comments, included mandatory 

distribution amounts of $1,000 or less 

noting that, although not described in 

Code section 401(a)(31)(B), tax-qualified 

retirement plans are permitted to 

distribute to a separating participant 

without the participant’s consent 

provided the present value of the 

participant’s vested accrued benefit did 

not exceed the maximum value at that 

time of $5,000.43 The Department said 

that, after taking into account the 

purpose and provisions of the safe 

harbor regulation, it was persuaded that 

application of the safe harbor to 

rollovers of mandatory distributions of 

$1,000 or less was appropriate because 

the availability of the safe harbor for 

such distributions might increase the 

likelihood that such amounts will be 

rolled over to individual retirement 

plans and thereby may promote the 

preservation of retirement assets 

without compromising the interests of 

the participants on whose behalf such 

rollovers are made.44 In addition, some 

plans may find it advisable to provide 

for automatic rollovers of all sizes of 

small accounts to avoid the issues that 

arise when distribution checks remain 

uncashed.45 Thus, in light of the fact 

that the regulatory exemption in Code 

section 4975 established by the SECURE 

2.0 Act specifically references 

401(a)(31)(B), the Department is 

interested in public comments on 

whether it should use its general 

exemption authority under ERISA 

section 408(a) to provide parallel 

exemptive relief for mandatory 

distributions of $1,000 or less for 

reasons similar to those noted above in 

connection with the Department’s 

automatic rollover safe harbor in 29 CFR 

2550.404a–2. 

F. Regulatory Impact Analysis 

The Department has examined the 

effects of this proposed rule as required 

by Executive Order 12866,46 Executive 

Order 13563,47 the Congressional 

Review Act,48 the Paperwork Reduction 

Act of 1995,49 the Regulatory Flexibility 

Act,50 section 202 of the Unfunded 

Mandates Reform Act of 1995,51 and 

Executive Order 13132.52

1. Executive Order 12866 (Regulatory 

Planning and Review), Executive Order 

14094 (Modernizing Regulatory Review), 

and 13563 (Improving Regulation and 

Regulatory Review) 

Under E.O. 12866 (as amended by 

Executive Order 14094), the Office of 

Management and Budget (OMB)’s Office 

of Information and Regulatory Affairs 

determines whether a regulatory action 

is significant and, therefore, subject to 

the requirements of the E.O. and review 

by OMB. 58 FR 51735. As amended by 

Executive Order 14094, section 3(f) of 

Executive Order 12866 defines a 

‘‘significant regulatory action’’ as a 

regulatory action that is likely to result 


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Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 5637 

53 2022 Survey of Consumer Finance. ‘‘Retirement 

Account by Age of Reference Person,’’ The Fed— 

Table: Survey of Consumer Finances, 1989—2022 

(federalreserve.gov). 

54Federal Reserve. ‘‘Survey of Household 

Economics and Decisionmaking.’’ 2022. 

55 Jack VanDerhei, ‘‘Retirement Savings 

Shortfalls: Evidence from EBRI’s 2019 Retirement 

Security Projection Model.’’ Employee Benefit 

Research Institute (March 7, 2019). 

56 Jennifer Brown, Joelle Saad-Lessler, and Diane 

Oakley. ‘‘Retirement in America: Out of Reach for 

Working Americans?’’ National Institute on 

Retirement Security. 2018. 

57U.S. Bureau of Labor Statistics, Employee 

Benefits, ‘‘Retirement plan provisions for private 

industry workers in the United States,’’ Table 2, 

reference year 2022, (April, 2023). Available at: 

https://www.bls.gov/ebs/publications/retirementplan-provisions-for-private-industry-workers2022.htm. 

58Employee Benefits Security Administration, 

Private Pension Plan Bulletin Historical Tables and 

Graphs 1975–2021, (September 2023), Table E4, 

(September 2023), https://www.dol.gov/sites/ 

dolgov/files/ebsa/researchers/statistics/retirementbulletins/private-pension-plan-bulletin-historicaltables-and-graphs.pdf. 

59U.S. Bureau of Labor Statistics, National 

Compensation Survey, Series: 

NBU29000000000000026313 & 

NBU29000000000002526313, (March, 2023), 

Available at: https://data.bls.gov/cgi-bin/srgate. 

in a rule that may: (1) have an annual 

effect on the economy of $200 million 

or more; or adversely affect in a material 

way the economy, a sector of the 

economy, productivity, competition, 

jobs, the environment, public health or 

safety, or state, local, territorial, or tribal 

governments or communities; (2) create 

a serious inconsistency or otherwise 

interfere with an action taken or 

planned by another agency; (3) 

materially alter the budgetary impact of 

entitlements, grants, user fees or loan 

programs or the rights and obligations of 

recipients thereof; or (4) raise legal or 

policy issues for which centralized 

review would meaningfully further the 

President’s priorities or the principles 

set forth in the Executive order. OMB 

has determined that this revision is a 

significant regulatory action under 

section 3(f)(1) of E.O. 12866. 

Executive Order 13563 directs 

agencies to propose or adopt a 

regulation only upon a reasoned 

determination that its benefits justify its 

costs; the regulation is tailored to 

impose the least burden on society, 

consistent with achieving the regulatory 

objectives; and in choosing among 

alternative regulatory approaches, the 

agency has selected those approaches 

that maximize net benefits. E.O. 13563 

recognizes that some benefits are 

difficult to quantify and provides that, 

where appropriate and permitted by 

law, agencies may consider and discuss 

qualitative values that are difficult or 

impossible to quantify, including 

equity, human dignity, fairness, and 

distributive impacts. 

2. Need for Regulation 

When American workers change jobs, 

they often encounter frictions that result 

in reduced retirement savings in 

aggregate. This regulation will alleviate 

some of those frictions, resulting in 

more retirement savings, which will 

improve Americans’ preparation for 

retirement. This is particularly 

beneficial given the wider context that 

many workers have insufficient 

retirement savings. Only 57 percent of 

households headed by 55–64 year olds 

held any retirement savings accounts in 

2022, and the median amount in those 

accounts was $185,000.53 The Federal 

Reserve reports that only one-third of 

Americans view their retirement savings 

plan as sufficient to meet their needs in 

retirement.54 This is consistent with 

projections by VanDerhei (2019) 

showing that about 41 percent of 

households ages 35 to 64 will run short 

of money in retirement.55 Similarly, 

Brown et al. (2018) find that nearly 77 

percent of Americans are behind in 

saving for retirement given their age and 

income.56

Previous generations of American 

workers who had a retirement plan 

usually had a defined benefit (DB) 

pension plan that promised fixed 

payments to them upon retirement. An 

employee’s retirement benefit under a 

DB plan often is based on a percentage 

of their final year’s compensation 

multiplied by their total years of 

employment with the sponsoring 

employer.57 Workers who changed jobs 

and moved to another plan, however, 

received less benefits from DB plans, as 

these plans often had a five-year cliff 

vesting policy, so a worker who stayed 

at a job for fewer than five years 

received no retirement benefits from 

that job. Even when a worker accrued 

benefits under a former employer’s DB 

plan, the effects of inflation often meant 

that their final year’s salary earned from 

their former employer tended to be 

lower than their final year’s salary 

earned from a subsequent employer 

before retirement. Since the employee’s 

final year’s salary is a key factor in the 

benefit formula, they would receive 

lower lifelong pension benefits as a 

result of switching jobs even if they 

worked the same number of years at the 

same salaries. 

In recent decades defined 

contribution (DC) plans have 

supplanted DB plans as the most 

prevalent type of pension plan provided 

to workers.58 DC plans, such as 401(k) 

plans, base their benefit on employer 

and employee contributions to an 

individual’s account and the investment 

earnings on their account balance. 

Currently, 49 percent of private industry 

workers (59 percent of full-time private 

industry workers) are participating in a 

DC plan.59 For workers that change jobs 

frequently, DC plans have certain 

portability advantages over traditional 

DB plans. Public policies such as this 

new automatic portability statutory 

exemption and this proposed regulation 

can further benefit participants by 

facilitating portability among DC plans 

and IRAs. 

In the current retirement system 

where employer-sponsored DC plans are 

the primary vehicle available for 

employees to save for retirement, an 

employee separating from service with 

an employer may be suddenly 

confronted with an important financial 

decision regarding how to handle 

retirement assets they have accrued in 

their employer’s DC plan. Making it 

simpler for employees to consolidate 

their retirement accounts and maintain 

their tax-favored status can improve 

retirement security for American 

workers. 

Currently, employees who change 

jobs generally have the following four 

options for handling their retirement 

assets: 

1. Leave the assets in their former 

employer’s plan. The separating 

employee can do this if the value of 

their accrued benefit under the plan 

meets any threshold imposed by the 

plan, which can be at most $7,000 

beginning in 2024. (A participant might 

choose this option because they find the 

former plan’s services, investments, and 

fees to be attractive or because of simple 

inattention.) 

2. Roll over their savings into a 

retirement plan sponsored by their new 

employer. 

3. Roll over their assets into an IRA. 

4. Cash out the balance. 

The first three of these options, where 

the assets are in a plan or an IRA, retain 

their tax-preferred status. A cashout, on 

the other hand, results in the loss of taxpreferred status for those assets. It is no 

longer earning investment returns that 

are tax-deferred. The funds are 

distributed directly to the employee and 

are subject to regular income taxes. 

Additionally, a 10 percent penalty tax 

applies if the employee is under age 55 

throughout the year in which they 

terminate service with the employer and 

if the employee does not qualify for an 

exception. 

When a plan participant separates 

from service with an employer with an 

account balance in the former 

employer’s DC plan, the former 

employer has the option to immediately 


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60Code sections 411(a)(11) and 417(e). 

61Code section 401(a)(31)(B)(i). 

62See SECURE 2.0 Act, Sec. 304. 

63 Government Accountability Office (GAO). 

‘‘401(k) Plans: Greater Protections Needed for 

Forced Transfers and Inactive Accounts.’’ (2014). 

64 Id. 

65Lucas Goodman, Anita Mukherjee, and Shanthi 

Ramnath (2023): ‘‘Set it and forget it? Financing 

retirement in an age of defaults’’, Journal of 

Financial Economics, vol 148, p.47–68. Investment 

Company Institute. ‘‘The IRA Investor Profile: 

Traditional IRA Investors’ Activity, 2007–2016.’’ 

(September 2018), Appendix: Figure A.2, Page 68. 

66 Yanwen Wang, Muxin Zhai, and John G. 

Lynch, Jr. ‘‘Cashing Out Retirement Savings at Job 

Separation.’’ (2023). Vanguard. ‘‘How America 

Saves.’’ 2023. Alight. ‘‘Universe Benchmarks 

Report: How Workers Are Saving and Investing in 

Defined Contribution Plans.’’ (2023). Alight. 

‘‘Distributions from Defined Contribution Plans: 

What Do Workers Do with their Retirement Savings 

After They Leave Their Employers? A Deep Dive 

into Post-Termination Behavior, 2008–2017.’’ 

(2019). Lucus Goodman, Jacob Mortenson, Kathleen 

Mackie, and Heidi R. Schramm, ‘‘Leakage from 

Retirement Savings Accounts in the United States,’’ 

(2021) National Tax Journal, 74(3), 689–719. 

67 VanDerhei, ‘‘Retirement Savings Shortfalls,’’ 

2019. 

68 Government Accountability Office. ‘‘401(k) 

Plans: Labor and IRS Could Improve the Rollover 

Process for Participants.’’ Report to Congressional 

Requesters. (2013). 

69 Government Accountability Office. 

‘‘Retirement Savings: Additional Data Analysis 

Could Provide Insight into Early Withdrawals.’’ 

Report to the Chairman, Special Committee on 

Aging, U.S. Senate. (2019). 

70 Internal Revenue Code section 4975(d)(25). 

71Brian Croce, ‘‘SECURE 2.0 Enshrines Auto 

Portability Into Law,’’ Pensions and Investments, 

cash out account balances of $5,000 or 

less without the participant’s consent (if 

the plan has a provision allowing the 

immediate distribution).60 These 

distributions are a form of cashout and 

are often referred to as ‘‘mandatory 

distributions.’’ If, however, the 

participant’s account balance is between 

$1,001 and $5,000, and the participant 

does not elect to have the account 

balance paid to an eligible retirement 

plan or receive the distribution directly 

in cash, then the plan administrator of 

the former employer’s plan must 

transfer such account balance to a socalled ‘‘Default IRA’’ if this is required 

by the plan’s provisions. These 

distributions are commonly referred to 

as ‘‘force-outs’’ or ‘‘automatic rollovers 

of mandatory distributions.’’ 61 As part 

of the SECURE 2.0 Act, Congress raised 

the $5,000 threshold to $7,000 (effective 

for distributions occurring after 

December 31, 2023).62

Default IRAs, while intended to 

preserve retirement assets in 

conservatively managed accounts, 

typically yield only minimal returns for 

investors while often imposing 

considerable fees.63 A 2014 study by the 

Government Accountability Office 

(GAO) found that, ‘‘fees outpaced 

returns in most of the [forced-out] IRAs 

analyzed’’ and that account balances 

‘‘tended to decrease over time.’’ 64 GAO 

also found the average return to be less 

than two percent for money market 

funds, which are typical investments for 

Default IRAs. In contrast, many 

accounts rolled into a worker’s new 

employer’s plan likely will be invested 

in the plan’s default investment, usually 

target date funds, which typically 

outpace the return on money market 

funds. Observing data on small balance 

rollover IRAs in general suggests that 

most Default IRA owners will stay 

invested in money market funds for a 

substantial length of time; recent data 

suggest roughly 40 percent of these 

accounts remain in principal-preserving 

investments for at least 10 years.65

With job turnover, a single individual 

may end up with multiple Default IRAs, 

further complicating the management of 

their retirement account assets, and in 

many cases, exposing participants to 

duplicative fees that might otherwise 

have been avoided if their assets were 

consolidated into a single account. Also, 

these Default IRAs are established by 

employers on behalf of non-responsive 

participants; therefore, they are more 

susceptible to being abandoned or 

forgotten by participants. 

Cashouts affect participants by 

removing their assets from tax-favored 

retirement accounts. A 2023 study by 

Wang, Zhai, and Lynch found that over 

40 percent of separating employees 

report cashing out at least some of their 

retirement account balance, consistent 

with reporting from numerous 

recordkeepers suggesting a cashout rate 

of approximately 40 percent among 

separating participants with account 

balances below $5,000.66 VanDerhei 

(2019) analyzes individuals age 35 to 64, 

projects forward their main sources of 

retirement resources, estimates how 

much they will fall short, aggregates that 

across all individuals, and calculates a 

present value, estimating an aggregate 

retirement savings shortfall in excess of 

$3 trillion. In light of this shortfall, 

reducing cashouts and retaining assets 

in the retirement system is an important 

retirement policy objective, particularly 

for those workers with small balance 

accounts who may be struggling to 

accumulate significant retirement 

assets.67

Taking a cashout or taking no action 

at all may seem like the simplest and 

most expedient courses of action for a 

small-balance account participant upon 

job separation but can result in suboptimal outcomes. A 2013 GAO study 

found that the rollover process was 

complex, inefficient, and burdensome 

for participants.68 These findings were 

reinforced by a 2019 GAO report, which 

suggested that frictions in the rollover 

process likely contributed to 

participants cashing out their accounts 

prematurely.69 Both studies advised that 

improving the processes for account 

consolidation after job separation is 

imperative to reducing the leakage of 

assets from the retirement system. 

Plan account portability is thus 

integral to the retention and 

accumulation of retirement assets for 

workers. Measures to improve account 

portability would serve to reduce 

participant losses due to cashouts (and 

the associated taxes and penalties for 

early withdrawals), lost accounts, 

duplicative fees arising from multiple 

accounts, and boost average investment 

return. 

The SECURE 2.0 Act includes a new 

statutory prohibited transaction 

exemption that seeks to improve 

retirement plan portability by 

permitting an automatic portability 

provider to perform automatic 

portability transactions for participants 

with Default IRA accounts established 

as a result of a mandatory distribution 

from a former employer’s plan if the 

individual does not respond to their 

former plan’s administrator’s notices.70

If an automatic portability provider 

meets the conditions of the statutory 

exemption, it can transfer assets from a 

worker’s Default IRA to their active 

account in their new employer’s DC 

plan. The proposed rule would 

implement the new statutory 

exemption. 

3. Baseline and Post Statute and 

Regulation Scenarios 

Prior to the passage of SECURE 2.0 

Act, RCH operated in the automatic 

portability marketplace using PTE 

2019–02 which is the ‘‘baseline’’ 

scenario for this analysis. As discussed 

previously, the PTE was issued for a 

five-year term. The need to renew the 

PTE, and the uncertainty associated 

with its continual renewal, creates 

uncertainty for the marketplace. The 

baseline includes the assumptions of 

future renewals of PTE 2019–02 for RCH 

and the mandatory distribution 

threshold to be at the pre-statute level 

of $5,000. SECURE 2.0 Act raised the 

mandatory distribution threshold for a 

plan administrator to transfer assets into 

a Default IRA from $5,000 to $7,000 and 

creates a statutory exemption that 

eliminated the uncertainty in the 

marketplace about the continued 

existence of PTE 2019–02, which should 

encourage the marketplace to expand its 

reach in the Defined Contribution 

universe.71 The analysis looks at the 


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Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 5639 

(January 27, 2023) at https://www.pionline.com/ 

retirement-plans/secure-20-enshrines-autoportability-law#:∼:text=

The%20SECURE%202.0%20

provision%20stipulates,sell

%20data%20relating%20to%20the. 

72 In other words, for an affected participant who 

changes jobs in year 10, there is a 90 percent chance 

that their former plan has a recordkeeper that 

belongs to PSN and also a 90 percent chance that 

their new plan has a recordkeeper that belongs to 

PSN. This means that 81 percent of the workers 

who switch from one DC plan to another in year 

10, have a small balance account, and do not take 

any affirmative action, would experience an 

automatic portability transaction. 

73Retirement Clearinghouse, LLC, Employee 

Benefit Research Institute, and contributor Boston 

Research Technologies. ‘‘Auto Portability Research 

& Simulation: Automating Plan-to-Plan Transfers 

for Small Accounts.’’ Consolidated Testimony in 

front of the ERISA Advisory Council, June 8, 2016. 

74See 83 FR 55741 (Nov. 7, 2018) (proposed 

exemption) and 84 FR 37337 (July 31, 2019) 

(granted exemption). 

75Portability Services Network, Our Structure, 

(2023), https://psn1.com/learning-center/aboutpsn/structure-of-psn. 

76Portability Services Network, Our Fees, (2023), 

https://psn1.com/learning-center/about-psn/whatare-psns-fees#:∼:text=Key%20aspects%20of%20

PSN’s%20fee,be%20processed%20

at%20no%20charge. 

77Plans classified as large constitute nearly 90 

percent of account holders in plans required to file 

the Form 5500 and must submit the Schedule C of 

the Form 5500, which covers service providers, 

such as recordkeepers. Plans considered small do 

not report this information. Calculation based on 

tabulations of the 2021 EBSA Private Pension Plan 

Bulletin Research File. 

78The Department is aware of one additional 

entity that had expressed interest in becoming an 

automatic portability provider; however, the 

Department understands this entity is no longer 

moving ahead with plans to become an automatic 

portability provider. 

combined impacts of the SECURE 2.0 

Act and the proposed regulations and 

does not distinguish between the two. 

The baseline assumes that the 

recordkeepers currently performing 

automatic portability transactions 

continue to be the only recordkeepers 

providing automatic portability 

transactions in the future, therefore the 

percent of plans and accounts covered 

by automatic portability remains 

unchanged at 65 percent. However, the 

percent of plans and accounts covered 

by automatic portability is expected to 

increase in the post-rule and regulation 

scenario, increasing from 65 percent to 

90 percent by year 10.72 This is actually 

a simplification, the average of a 

number that likely would have grown 

slightly in the absence of the Secure 2.0 

Act. Before passage of the Act, in 

October 2022, there were only three 

recordkeepers who had joined the 

automatic portability consortium. of 

2022, the Secure 2.0 Act was signed in 

late December 2022, and very soon 

shortly thereafter other large 

recordkeepers joined. While much of 

this growth in consortium members is 

likely related to the prospect and 

enactment of legislation, there might 

have been some growth even without 

the legislation. The inclusion of 

automatic portability in the Secure 2.0 

Act increases awareness of the program 

and that publicity may promote growth. 

This assumption is based on 2016 

testimony by RCH and EBRI before the 

ERISA Advisory Council wherein they 

stated that the ability to locate and 

match accounts to conduct automatic 

portability transfers is ‘‘highly 

dependent on market adoption.’’ 73 As 

the network grows, there is a greater 

likelihood of being able to match a 

separating participant with their new 

employer’s plan. As a result, the 

benefits of belonging to the network 

increase, encouraging more 

recordkeepers to join. It is anticipated 

that as a result of the legislation and the 

reduced uncertainty, more 

recordkeepers will join the consortium, 

and this dramatic growth is reflected in 

the post-rule estimates. Section 9 

‘‘Uncertainty’’ provides an alternative 

estimate reflecting growth in the 

number of recordkeepers joining the 

network in the baseline scenario. The 

Department requests comment on the 

portion of the expansion in 

recordkeepers joining the network that 

would be attributable to the proposal. 

4. Affected Entities 

4.1. Automatic Portability Providers 

Retirement Clearinghouse (RCH), 

originally founded as RolloverSystems 

in 2001, was the first company to 

approach the Department for subregulatory guidance and prohibited 

transaction relief to offer an automatic 

portability program to plans. RCH 

asserted that its services would facilitate 

automatic rollovers into Default IRAs 

from accounts in plans of individuals’ 

former employers that are eligible for 

mandatory distributions under Code 

section 401(a)(31)(B), automatic 

rollovers into Default IRAs of account 

balances from terminated DC plans, and 

automatic roll-in of funds held in 

Default IRAs to an individual account 

plan maintained by the IRA owner’s 

new employer when the Default IRA 

owner changes jobs and has an account 

in their new employer’s DC plan. In 

2019, the Department issued PTE 2019– 

02, an individual prohibited transaction 

exemption permitting RCH to receive 

certain fees in connection with the 

transfer of an individual’s Default IRA 

to the individual’s account in a new 

employer-sponsored plan, without the 

individual’s affirmative consent.74

Since then, RCH’s footprint in the 

automatic portability space has grown 

with its formation of the Portability 

Services Network (PSN). This network 

currently consists of founding owning 

members RCH and six recordkeepers: 

Alight, Empower, Fidelity, Principal, 

TIAA, and Vanguard, and it can 

incorporate an unlimited number of 

additional member recordkeepers. 

While PSN operates as a separate entity 

from RCH that is controlled by RCH’s 

founding owning members, PSN solely 

relies on the technological infrastructure 

and operations established by RCH.75

PSN’s website currently states that it 

does not charge a fee to recordkeepers 

or plan sponsors for its automatic 

portability services; instead, it charges 

participants a one-time fee when their 

account balances are transferred into a 

new employer’s plan. Currently, the 

maximum transfer fee is $30, and the fee 

could be lower for smaller accounts.76

The automatic portability provider 

market is new and complex. Therefore, 

there is significant uncertainty regarding 

how many entities will offer automatic 

portability services in the future and 

how the automatic portability 

marketplace will evolve. Barriers to 

entry exist in the business model, 

because entities must have sufficient 

access to plan and IRA participant data 

and information systems technology 

that would allow it to match a worker’s 

default IRA with their plan account and 

transfer the employee’s Default IRA to 

their new employer’s plan. The larger 

the amount of data available to the 

automatic portability provider, the more 

successful it will be in matching 

participants’ Default IRAs with their 

active accounts in a new employer’s 

plan. 

Based on the best available data, the 

Department estimates that PSN 

currently covers more than 60 percent of 

account holders in large DC plans 77 and 

that its market share is likely to increase 

further due to the new statutory 

prohibited transaction exemption. Due 

to the aforementioned barriers to entry 

for potential automatic portability 

providers, the Department is unaware of 

any entities other than PSN that are 

currently planning to become an 

automatic portability provider in 

reliance on Code section 4975(d)(25).78

Therefore, for purposes of this analysis, 

the Department assumes that PSN will 

be the only entity providing automatic 

portability provider services pursuant to 

the statutory exemption. The 

Department assumes this will be the 

case even though RCH was granted PTE 

2019–02, because the individual 

exemption has a limited five-year term 

that expires on July 31, 2024, while the 


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79Portability Services Network, PSN Participating 

Owner Members and Members, (2023), https://

psn1.com/auto-portability/regulatory-information/ 

participating-recordkeepers. 

80The analysis only included plans with nonzero 

plan assets and nonzero participants. Calculations 

based on the 2021 Form 5500. 

81While this rulemaking technically may apply to 

separated, vested DB participants as well, the 

Department believes that it is rare that they would 

be affected by the rule and therefore does not 

include them in its estimates. For further 

discussion, please see section 9. Uncertainty. The 

number of participants is left static throughout the 

ten-year time period of analysis. While this could 

impact the overall estimate of the benefits and 

costs, it does not impact the relative difference 

between benefits and costs. 

82Tabulations presented are based on the 2021 

EBSA Private Pension Plan Bulletin Research File. 

83BLS Series Report(s) from the Current 

Employment Statistics program: CES9092000001 & 

CES9093000001, Dec 2022 data element, data 

accessed 10/2/2023 from: https://data.bls.gov/cgibin/srgate. 5,087,000 state employees and 

14,370,000 local government employees. 

statutory exemption does not, and RCH 

would have to request additional relief 

from the Department to continue relying 

on PTE 2019–02 after its five-year term 

expires. If, counter to the Department’s 

assumption, it turns out that there is 

more than one automatic portability 

provider, the Department anticipates 

that the number of automatic portability 

providers would be very small because 

of the barriers to entry. They might 

specialize by geography or by types of 

plan; for example, one automatic 

portability provider might specialize in 

plans for government employees. It 

seems likely that their networks would 

overlap so both automatic portability 

providers could be successful in making 

many matches. The Department 

welcomes comments regarding how 

many automatic portability providers 

there would be, as well as data and 

other information that will allow the 

Department to further assess how the 

automatic portability marketplace will 

develop. 

4.2. Recordkeepers 

As discussed above, the Department 

assumes that PSN will be the only 

automatic portability provider in the 

market. PSN is structured with seven 

‘‘owner members,’’ who have board 

control. It allows for open recordkeeper 

membership without board control. In 

September of 2023, PSN stated that the 

owner members, which include Alight, 

Empower, Fidelity, Principal, RCH, 

TIAA, and Vanguard, were the only 

members at that time.79 There is 

significant uncertainty regarding how 

many recordkeepers will join PSN. The 

Department believes that automatic 

portability transactions will be a 

desirable feature for plan sponsors and 

participants, which may drive growth in 

recordkeeper participation. 

Recordkeepers do not incur a direct cost 

to join PSN. The Department requests 

comment on how many recordkeepers 

would choose to join PSN. 

While this analysis assumes that PSN 

will be the only automatic portability 

provider, the Department acknowledges 

that another automatic portability 

provider may enter the market. Entry of 

additional automatic portability 

providers may impact the number of 

affected recordkeepers and the manner 

in which those recordkeepers are 

affected by this proposed regulation. 

According to the Department’s 

analysis of 2021 Form 5500 data, there 

were 1,951 recordkeepers providing 

services to private sector DC retirement 

plans.80 As described in more detail in 

subsection 3.1 above, the six 

recordkeepers that are founding owner 

members of PSN administer accounts 

for over 60 percent of account holders 

in large DC plans that file Form 5500. 

The Department estimates that by the 

end of the ten-year estimation period for 

this analysis, roughly 90 percent of the 

DC account holders in plans filing Form 

5500 would be associated with 

participating recordkeepers. As an 

illustration, this level of recordkeeper 

participation could be achieved if the 

next 12 largest recordkeepers, in terms 

of account holders serviced, fully 

participated in the program. Because the 

market is currently dominated by large 

recordkeepers, the Department 

anticipates that additional entry into the 

market will be initially dominated by 

other large recordkeepers. However, 

because of the low cost to participate in 

the PSN, it is possible that most 

recordkeepers will eventually 

participate in it. The Department solicits 

comments on its assumptions and 

estimates regarding recordkeeper 

participation. 

4.3. Plans, Plan Participants, and the 

Number of Automatic Portability 

Transactions 

This section derives an estimate of the 

number of automatic portability 

transactions. It does so by (1) identifying 

plans, participants, and assets covered 

by PSN-participating recordkeepers, (2) 

estimating the number of accounts 

below the mandatory distribution 

threshold, and (3) estimating 

employment separations and postseparation behavior. It estimates these 

figures under the baseline scenario and 

under implementation of the statute and 

regulation. 

4.3.1. Plans, Participants and Assets 

The proposed regulation has the 

potential to affect participants with 

account balances in any employersponsored retirement plan that is: (1) a 

qualified trust; (2) an annuity plan 

described in Code section 403(a); (3) an 

eligible deferred compensation plan 

described in Code section 457(b) which 

is maintained by an eligible employer 

described in Code section 457(e)(1)(A); 

or (4) an annuity contract described in 

Code section 403(b).81 Approximately 

635,000 DC plans reported participants 

with account balances on their 2021 

Form 5500. These plans cover 86.6 

million participants with total account 

balances of $9.3 trillion. 

To understand the number of plans, 

participants and assets that could be 

impacted one would need to know if the 

plan’s recordkeeper is part of the PSN 

network and if their account balance is 

below the mandatory distribution 

threshold ($5,000 baseline or $7,000 

post statute and regulation) when they 

separate from employment. To identify 

plans with PSN-participating 

recordkeepers the Department queried 

Form 5500 Schedule C data, which has 

information on a plan’s service 

providers. The data has limitations. in 

particular, only large plans are required 

to submit the Schedule C, which means 

the majority of plans do not have to file 

the Schedule C. However, the group of 

retirement plans required to submit the 

Schedule C covers nearly 90 percent of 

participants with account balances and 

90 percent of assets, which are the main 

variables of interest. 

The query of Schedule C data showed 

that the six recordkeepers that are 

founding owner members of PSN 

provided services to over 34,600 large 

plans (40 percent of large plans) with 47 

million account holders (61 percent of 

account holders in large plans). These 

plans held $5.5 trillion in assets (66 

percent of large plan assets) in 2021.82

Some plans with participants that 

may be impacted by the proposed rule 

are not required to file the Form 5500, 

for example state and local 

governmental plans. Account holders 

who participate in state and local 

governmental plans that are not covered 

by ERISA may also be affected by the 

proposed rule if their plan sponsor 

contracts with an automatic portability 

provider to provide automatic 

portability services. According to BLS 

employment data, there are almost 20 

million currently employed state and 

local government workers in the United 

States.83 The March 2021 National 

Compensation Survey: Employee 

Benefits in the United States indicates 

that 18 percent of state and local 


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Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 5641 

84BLS, ‘‘National Compensation Survey: 

Employee Benefits in the United States’’, 

(September 2021), Employee Benefits in the United 

States, March 2021 (bls.gov). 

85Calculated as: 18% × (5,087,000 state 

employees + 14,370,000 local government 

employees) = 3,502,260. 

86There are some accounts that could have 

balances above the $7,000 threshold that are still 

subject to a mandatory distribution. See Code 

section 411(a)(11)(D) for circumstances where the 

amount of a distribution may be greater than $5,000 

if a participant made a previous roll-in to a plan 

from an individual retirement plan. In such 

circumstances, the roll-in funds are not considered 

in determining the $5,000 vested accrued balance, 

so a larger amount of assets could be subject to a 

mandatory distribution under the terms of the plan. 87Sarah Holden, Steven Bass, and Craig 

Copeland. ‘‘401(k) Plan Asset Allocation, Account 

Balances and Loan Activity in 2020,’’ EBRI Issue 

Brief #576. November 29, 2022. Retirement 

Clearinghouse, LLC, Employee Benefit Research 

Institute, and contributor Boston Research 

Technologies. ‘‘Auto Portability Research & 

Simulation: Automating Plan-to-Plan Transfers for 

Small Accounts.’’ Consolidated Testimony in front 

of the ERISA Advisory Council, June 8, 2016. 

88 Vanguard. ‘‘How America Saves.’’ 2023. 

89Federal Reserve. ‘‘Economic Well-Being of U.S. 

Households in 2022.’’ (2023). https://

www.federalreserve.gov/publications/files/2022- 

report-economic-well-being-us-households202305.pdf. 

90Callan Institute. ‘‘2023 Defined Contribution 

Trends.’’ https://www.callan.com/research/2023- 

defined-contribution-trends-survey/. 

government workers participate in a 

defined contribution plan.84 Without 

more granular data, it is difficult for the 

Department to determine a reasonably 

specific proportion of these workers that 

could be affected by the proposed rule. 

However, the Department estimates that 

up to 3.5 million state and local 

government workers participate in a DC 

plan that may also incorporate a 

mandatory distribution provision for 

small account balances.85

4.3.2. Accounts With Balances Less 

Than the Mandatory Distribution 

Amount 

The proposed regulation directly 

affects participants with account 

balances less than $7,000 in a plan at 

the time of separation from 

employment, previously only $5,000.86

To estimate the number of affected 

participants, the Department considered 

the separation rate for participants 

within this group and the proportion of 

DC plan accounts with balances under 

$7,000. 

While the Department lacks data 

specifically on DC accounts with less 

than $7,000, there are related data that 

are useful in the construction of an 

estimate. The Employee Benefit 

Research Institute (EBRI) reported that 

in 2020, 40 percent of 401(k) plan 

accounts with balances had less than 

$10,000 in their accounts and 28 

percent had less than $5,000 in their 

account.87 The Department used this 

data to estimate that approximately 33 

percent of DC plan accounts will have 

balances below the new mandatory 

distribution threshold of $7,000. 

Additionally, the Department estimates 

that 28 percent of DC plan accounts 

would have balances below the current 

mandatory distribution threshold of 

$5,000 that represent the baseline. The 

Department requests comment on these 

assumptions and this estimate. 

4.3.3. Affected Accounts 

Table 1 shows the estimates of the 

number of accounts, how the affected 

accounts are identified, and how the 

affected accounts are impacted in the 

baseline scenario and post-rule scenario 

for the first year in the estimation 

period. This section explains the 

assumptions and calculations used to 

obtain the estimates in the table. A 

similar table could be constructed for 

each year, with the difference for each 

year being the percent of accounts 

covered by the automatic portability 

network. A key takeaway from the table 

is the increase in accounts in plans with 

the automatic portability feature from 

the baseline to the post-rule scenario. 

The increase in these accounts is the 

source of much of the benefits of the 

rule. Bolded numbers at the bottom of 

a table are numbers that flow into a 

subsequent table. 

TABLE 1—AFFECTED ACCOUNTS

Baseline Post-rule 

Defined Contribution Plan Account Holders ............................................................................................................ 86,573,634 86,573,634 

× Job Separation Rate Associated with Modest Account Balances ....................................................................... 20% 20% 

= Annual Account Churn ......................................................................................................................................... 17,314,727 17,314,727 

× Proportion with Balance of $7,000 or less ........................................................................................................... 33% 33% 

= Affected Accounts ................................................................................................................................................ 5,713,860 5,713,860 

× Proportion of Separating Account Holders Subject to Mandatory Distribution .................................................... 85% 100% 

= Accounts Subject to Mandatory Distribution 1 ...................................................................................................... 4,848,124 5,713,860 

Accounts Not Subject to Mandatory Distribution 1 .................................................................................................. 865,736 0 

1These values flow into Table 3. 

A 2023 report by Vanguard suggests 

that accounts with balances below 

$10,000, which is the most similar 

balance category that aligns with the 

mandatory distribution limit and 

therefore used as a proxy for this group, 

are primarily held by participants with 

household incomes of less than 

$50,000.88 The Federal Reserve 

Economic Well-Being of U.S. 

Households Survey of Household 

Economics and Decisionmaking (SHED) 

survey provides data on voluntary and 

involuntary employment separations by 

income range. Based on SHED data from 

2018–2022, the Department assumes a 

separation rate of 20 percent for workers 

with annual household incomes of less 

than $50,000.89 The Department uses 

this factor as the separation rate for 

small balance plans in its estimations. 

The Department is interested in the 

post-separation behavior of both the 

employer/plan sponsor and account 

owner. A survey conducted by the 

Callan Institute in 2022 found that 65 

percent of DC plan sponsors sought to 

retain assets of both retirees and 

terminated participants, with 85 percent 

seeking to retain assets of retirees and 

65 percent seeking to retain assets of 

other terminated participants.90 This 

study also suggests that plan sponsors 

seek to retain separating employees’ 

plan assets due to cost efficiencies, 

although half of the responding plan 

sponsors did not have a strategy in place 

for asset retention. The Department 

seeks comment from entities such as 

plan sponsors and recordkeepers with 

information on plan policies and 


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91 Vanguard. ‘‘How America Saves.’’ 2023; Alight. 

‘‘Universe Benchmarks Report.’’ 2023. 92See Code section 401(a)(31)(B) as amended by 

the SECURE 2.0 Act. Previously, this ‘‘force out’’ 

applied to a separating employee with DC plan 

savings between $1,001 and $5,000. 

93Boston Research Technologies. ‘‘Eliminating 

Friction and Leaks in America’s Defined 

Contribution System.’’ 2013. 94These estimates are calculated as follows: 36% 

baseline cashout rate × 25% decline from automatic 

portability = 9 percentage points. The estimated 

post-rule cashout rate is the baseline cashout rate, 

36%, minus 9%, which equals 22%. The estimated 

post-rule rollover rate is the baseline rollover rate 

of 22%, plus the 9% increase from automatic 

portability, which equals 31%. 

participant behavior after job separation 

related to small balance accounts. 

Two recordkeepers servicing 8 

million accounts, Alight and Vanguard, 

published separate experience studies 

regarding post-separation actions in 

2023.91 These reports have informed the 

Department’s understanding of the 

disposition of small balance accounts. 

As presented in table 2, the two studies 

report similar rates of cashouts. 

However, the proportion of accounts 

rolling over and remaining with the 

prior employer’s plan varied 

significantly. These differences may be 

attributable to differing economic 

conditions, differing levels of financial 

literacy, or by plan design elements 

unique to the recordkeeper. 

TABLE 2—POST-SEPARATION BEHAVIOR FOR SMALL BALANCE ACCOUNTS

[$1,000–$4,999] 

Year 

published Recordkeeper Accounts Cashout (%) 

Remain in 

plan 

(%) 

Rollover 

(%) 

2023 ............................... Vanguard ............................................................. 5,000,000 34 51 15 

2023 ............................... Alight .................................................................... 3,000,000 39 28 33

Behavior Assumptions without Automatic Portability Feature * ................................................... 36 42 22 

Behavior Assumptions with Automatic Portability Feature (Based on RCH Pilot) ..................... 27 42 31 

* Weighted average of values from Vanguard and Alight reports. Automatic portability is estimated to decrease cashouts by 25% across eligible 

accounts, which increases rollovers by approximately 40%. 

The Department developed its 

estimates related to post-separation 

actions using both studies to create 

weighted averages based on the number 

of accounts in each study. Therefore, the 

Department estimates that 36 percent of 

separations will result in a cashout in 

the absence of the enhanced automatic 

portability plan feature provided in this 

proposal and statutory exemption. The 

Department acknowledges that the 

experience of these two service 

providers may not be representative of 

the experience for all plan 

recordkeepers and requests comments 

or additional data concerning this 

assumption. 

This proposal would affect plan 

participants differently depending on 

the size of their account balance. As 

discussed above, under current law, a 

separating employee with a DC plan 

account balance of $7,000 or less can be 

‘‘cashed out’’ of the plan by their 

employer without their consent. A 

separating employee with DC plan 

savings between $1,001 and $7,000 can 

only be ‘‘forced out’’ of their plan into 

a Default IRA through an automatic 

rollover if they do not provide 

directions to the employer after 

receiving a notice from the plan’s 

administrator.92

Alternatively, this proposal would 

allow for ‘‘automatic portability 

transactions.’’ These are transactions in 

which assets held in a Default IRA 

established on behalf of an individual 

from a mandatory distribution from an 

employer-sponsored retirement savings 

plan are subsequently transferred to an 

eligible employer-sponsored plan in 

which such individual is an active 

participant, after such individual has 

been given advance notice of the 

transfer and has not affirmatively opted 

out of such transfer. As shown above in 

table 2, the Department estimates that 

the statutory exemption would reduce 

the propensity to cash out for separating 

participants with small accounts by 25 

percent. The basis for this estimate is a 

pilot study of automatic portability 

conducted by RCH which reduced 

cashout rates for small balance account 

holders by approximately 50 percent.93

The specific way the pilot study was 

implemented, however, suggests that 

this finding is larger than we would 

observe under the statutory exemption. 

The pilot study had a selected sample 

of participants who had been matched 

to a current, active account. Participants 

received a letter encouraging them to 

call and speak with someone who 

would provide advice or guidance about 

their options and offer to help them 

implement a rollover. 

Table 3 shows how the affected 

accounts are sorted in the Department’s 

estimation process for year one. For 

both the baseline and the post-rule 

scenario, the first step is to group the 

accounts based on whether or not the 

account belongs to a plan with the 

automatic portability feature and 

accounts subject to a mandatory 

distribution requirement. There are 

865,736 accounts that are not subject to 

mandatory distribution in the baseline 

because their balances are between 

$5,001 and $7,000. These accounts are 

subject to mandatory distribution in the 

post-rule scenario. The assumptions 

from table 2 are then applied to these 

groups to estimate the share of small 

accounts post-separation being cashed 

out, remaining in the plan, and those 

rolled over.94


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95Approximately 60% is an estimate of the share 

of IRAs below the current mandatory distribution 

threshold of $5,000, established from a rollover, 

that remain fully invested in money market funds 

after one year of opening. See Figure 6.8. 

Investment Company Institute. ‘‘The IRA Investor 

Profile: Traditional IRA Investors’ Activity, 2007– 

2016.’’ (2018). Goodman, Mukherjee, and Ramnath, 

‘‘Set It and Forget It,’’ 2023. 

TABLE 3—YEAR ONE DISPOSITION OF ACCOUNTS

Disposition of accounts 

Baseline 1 Post-rule 

Accounts subject 

to mandatory 

distribution 

Accounts not 

subject to 

mandatory 

distribution 1

Total 

Accounts subject 

to mandatory 

distribution 

Total 

Accounts with Balances Below $7,000 .. 4,848,124 865,736 5,713,860 5,713,860 5,713,860 

Cashout: 

Number of Accounts ....................... 1,461,709 311,665 1,773,374 1,722,728 1,722,728 

Remain in Plan: 

Number of Accounts ....................... 2,036,212 363,609 2,399,821 2,399,821 2,399,821 

Rollover: 

Number of Accounts ....................... 1,350,202 190,462 1,540,664 1,591,310 1,591,310 

× Estimated Percent of Rollovers Going 

into Default IRAs ................................ 60% 0% .............................. 60% 60% 

Total Default IRAs .................................. 810,122 0 810,122 954,786 954,786 

× Year One Account Coverage by AP 

Network 2 ............................................ 65% 65% 65% 65% 65% 

Automatic Portability Feature ................. 526,579 0 526,579 620,611 620,611 

No Automatic Portability Feature 3 ......... 283,543 0 283,543 334,175 334,175 

1 In the baseline, accounts with assets between $5,001 and $7,000 are not subject to mandatory distribution. In the post-rule scenario, all accounts with assets below $7,000 are subject to mandatory distribution. 2 Coverage by the AP network is expected to expand in the post rule scenario while the baseline is assumed to remain constant. The post rule 

scenario is modeled using the following coverage assumptions: Ai = {65%, 72%, 78%, 82%, 84%, 86%, 88%, 89%, 90%, 90%}; where element i 

= years 1 through 10. 3 35 percent of accounts are not assumed to be covered by the AP network in year one. The percent of accounts not covered by the AP network in subsequent years may be calculated as 1¥Ai.

Finally, the Department estimates the 

number of default IRA accounts 

expected to be generated from the roll 

over activity in year one. Research finds 

that approximately 60 percent of all 

small account balance IRA rollovers 

(default IRAs) are the result of automatic 

rollovers of mandatory distributions.95

The estimates of accounts rolling over 

for the first year described in table 3 are 

applied to the 60 percent factor to 

generate the estimated number of 

affected accounts expected to roll over 

into a default IRA. This is the group 

where the automatic portability 

transactions will occur. These 

calculations continue into table 4, 

where the number of Default IRAs is 

shown over each of the first ten years, 

followed by the number of Default IRAs 

with automatic portability features, as 

well as the number that ultimately 

result in an automatic portability 

transaction each year. 


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5644 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

TABLE 4—TEN

YEAR

COUNTS OF

DEFAULT IRA AND

AUTOMATIC

PORTABILITY (AP) TRANSACTIONS

Estimation period Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total 

Baseline (RCH/PSN Operates, $5,000 Distribution Limit) Coverage/Match Factor .............................................. 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% Default IRAs ................................................................ 810,122 810,122 810,122 810,122 810,122 810,122 810,122 810,122 810,122 810,122 8,101,220 Accounts with AP ........................................................ 526,579 526,579 526,579 526,579 526,579 526,579 526,579 526,579 526,579 526,579 5,265,790 AP Transfers ............................................................... 337,484 337,484 337,484 337,484 337,484 337,484 337,484 337,484 337,484 337,484 3,374,840 Post-Rule (RCH/PSN Grows, $7,000 Distribution Limit) Coverage/Match Factor .............................................. 65% 72% 78% 82% 84% 86% 88% 89% 90% 90% Default IRAs ................................................................ 954,786 976,384 994,897 1,007,239 1,013,410 1,019,581 1,025,752 1,028,837 1,031,923 1,031,923 10,084,732 Accounts with AP ........................................................ 620,611 702,996 776,020 825,936 851,264 876,840 902,662 915,665 928,731 928,731 8,329,456 AP Transfers ............................................................... 397,749 519,606 630,585 699,159 724,418 766,494 809,360 817,864 839,779 824,156 7,029,170 Differences between the Baseline and Post-Rule: 

Default IRAs ........................................................ 144,664 166,262 184,775 197,117 203,288 209,459 215,630 218,715 221,801 221,801 1,983,512 Accounts with AP ................................................ 94,032 176,417 249,441 299,357 324,685 350,261 376,083 389,086 402,152 402,152 3,063,666 AP Transfers ........................................................ 60,265 182,122 293,101 361,675 386,934 429,010 471,876 480,380 502,295 486,672 3,654,330 

* The Department estimates that approximately 1.4% of all accounts that are matched for an automatic portability transaction will not be transferred due to account holder opt-out. The coverage/match rates can not 

be applied directly to the estimates in the table to obtain other estimates in the table. The drop in Automatic Portability transfers from year 9 to year 10 is a function of the coverage/match rates being the same in both years in the estimation model. 


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5. Benefits 

This section describes the benefits of 

the proposed regulation in comparison 

to the baseline before the statutory 

exemption for automatic portability 

transactions was enacted by SECURE 

2.0 Act. As previously stated, RCH/PSN 

already relies on relief the Department 

provided in PTE 2019–02, an 

administrative individual exemption, to 

provide automatic portability provider 

services. In general, the benefits of the 

proposed regulation are derived from 

the removal of the uncertainty 

associated with the need to rely on an 

individual exemption. Moreover, RCH/ 

PSN will benefit from this proposed 

regulation because they would not have 

to request additional relief from the 

Department when the five-year term of 

PTE 2019–02 expires. 

The establishment of a statutory 

exemption encourages the growth of the 

market for automatic portability 

providers. As previously stated, the 

Department assumes that RCH currently 

represents roughly 65 percent of the 

accounts in the system and that they 

have a success rate of 65 percent in 

matching accounts in that system. This 

results in roughly 337,000 automatic 

portability transfers estimated to occur 

each year in the baseline. This is 

compared to the expansion that results 

from the rule where the Department 

estimates the number of automatic 

portability transfers to grow to 

approximately 825,000 at the end of the 

estimation window. This estimate 

represents automatic portability 

coverage for approximately 90 percent 

of the accounts in the DC system. This 

is anticipated to result in $2.8 billion of 

undiscounted benefits arising through: 

• An increase in potentially affected 

accounts due to the increase in the 

mandatory distribution threshold from 

$5,000 to $7,000; 

• Projected account balance 

appreciation and higher returns; 

• Reduction of duplicative fees; and 

• Consolidation of abandoned 

accounts. 

Retaining assets in retirement 

accounts and avoiding cashouts is an 

objective of the statute and proposed 

rules. Table 5a shows the value of assets 

retained in the retirement accounts 

through a reduction of the amount of 

assets cashed out. The impact of the rule 

is the difference in the value of accounts 

that cashout post-rule relative to the 

baseline. This amount is not classified 

as a benefit. Table 5b shows each 

component of the quantified benefit 

stream measured as improvements 

between the baseline scenario and the 

post proposed rule scenario. The 

increase overtime in affected accounts is 

incorporated into the values displayed. 


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5646 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

TABLE 5A—VALUE OF

AFFECTED

ACCOUNTS

[$ in millions] 

Year 1 2 3 4 5 6 7 8 9 10 Total 

Retirement Assets Retained via Cashout Avoidance: 

Rule ..................................................................... $5,334 $5,202 $5,086 $5,007 $4,967 $4,926 $4,886 $4,865 $4,844 $4,844 $49,962 ¥Baseline ........................................................... 5,461 5,461 5,461 5,461 5,461 5,461 5,461 5,461 5,461 5,461 54,609 

= Assets Retained ........................................ 127 259 375 454 494 534 575 596 617 617 4,647 

Present Value of Assets Retained by Discount Rate: 

3 Percent ............................................................. 123 244 343 403 426 448 468 470 473 459 3,856 7 Percent ............................................................. 118 226 306 346 352 356 358 347 335 313 3,059 

TABLE 5B—VALUE OF

AFFECTED

ACCOUNTS

[$ in millions] 

Year 1 2 3 4 5 6 7 8 9 10 Total 

Value of Reallocation of Assets: 

Rule ..................................................................... $29,218 $27,792 $26,380 $24,954 $23,554 $22,267 $21,058 $19,905 $18,839 $17,842 $231,808 ¥Baseline ........................................................... 29,249 27,570 26,013 24,569 23,229 21,987 20,835 19,767 18,776 17,857 229,851 

= Benefits ..................................................... ¥31 222 367 385 325 280 223 139 63 ¥15 1,957 

Value of Duplicated Account Fees: 

Rule ..................................................................... 17 39 65 94 125 157 191 225 261 295 1,469 ¥Baseline ........................................................... 14 28 43 57 71 85 99 113 128 142 780 

= Benefits ..................................................... 3 10 22 38 54 72 92 112 133 153 689 

Value of Abandoned Accounts Consolidated: 

Rule ..................................................................... 12 16 19 21 22 23 24 25 25 25 211 ¥Baseline ........................................................... 10 10 10 10 10 10 10 10 10 10 101 

= Benefits ..................................................... 2 5 9 11 12 13 14 14 15 15 110 

Annual Total: 

Rule ..................................................................... 29,247 27,846 26,464 25,069 23,701 22,447 21,273 20,155 19,125 18,162 233,488 ¥Baseline ........................................................... 29,273 27,609 26,066 24,636 23,310 22,082 20,944 19,890 18,913 18,009 230,732 

= Benefits ..................................................... ¥26 237 398 433 390 365 329 265 211 153 2,756 

Present Value of Benefits by Discount Rate: 

3 Percent ............................................................. ¥26 224 364 385 337 306 267 209 162 114 2,342 7 Percent ............................................................. ¥25 207 325 331 278 243 205 154 115 78 1,911 


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Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 5647 

96Federal Reserve. ‘‘Economic Well-Being of U.S. 

Households in 2022.’’ (2023). https://

www.federalreserve.gov/publications/files/2022- 

report-economic-well-being-us-households202305.pdf. 

97Employee Benefit Research Institute. ‘‘EBRI 

IRA Database: IRA Balances, Contributions, 

Rollovers, Withdrawals, and Asset Allocation, 2017 

Update.’’ (2020). 

98 Government Accountability Office. ‘‘401(k) 

Plans: Greater Protections Needed for Forced 

Transfers and Inactive Accounts.’’ (2014). 

99The estimate is calculated as follows: 3,654,330 

account consolidations × $42 = $153,481,860 in 

benefits. $153,481,860 × average of 4.5 years 

receiving benefit per account = $689,003,322 in 

total benefits. At a discount rate of 3 percent, this 

results in $552,051,586 in total benefits. At a 

discount rate of 7 percent, this results in 

$417,450,008 in total benefits. 

100 In this study, account abandonment is proxied 

by a failure to claim the account over ten years after 

a legal requirement to do so; specifically, the 

required minimum distribution requirement. 

Goodman, Mukherjee, and Ramnath, ‘‘Set It and 

Forget It,’’ 2023. 

101 Id. 

102 Id. 103The estimate is calculated as follows: 

3,654,330 account consolidations from automatic 

portability transactions × 1% of retirement accounts 

that are abandoned = 36,544 abandoned accounts 

consolidated. 36,544 accounts × $3,000 average 

account balance for Default IRAs = $109,632,000. At 

a discount rate of 3 percent, this results in 

$90,685,800 in total benefits. At a discount rate of 

7 percent, this results in $71,592,717 in total 

benefits. 

104See Code section 411(a)(11)(D) for 

circumstances where the amount of a distribution 

may be greater than $5,000 ($7,000 beginning in 

2024) if a participant made a previous roll-in to a 

plan from an individual retirement plan. In such 

circumstances, the roll-in funds are not considered 

in determining the $5,000 vested accrued balance, 

so a larger amount of assets could be subject to a 

mandatory distribution under the terms of the 

plan.’’ 

Lastly, it should enhance the ability of 

American workers to achieve their 

retirement savings goals by 

consolidating retirement funds into 

fewer accounts and investing assets 

consistent with their retirement needs. 

These benefits are described in more 

detail in the following subsections. 

5.1. Benefits for Plan Participants 

The Department expects that DC plan 

participants with small account 

balances that are subject to the Code’s 

mandatory distribution rules would 

benefit from increased access to 

automatic portability transactions in 

several ways. First, their retirement 

account balances would be consolidated 

in their new employer’s plan, which 

would reduce participants’ exposure to 

duplicative fees. Second, the incidence 

of missing participants and abandoned 

accounts would decrease as a result of 

the automatic portability providers 

matching a Default IRA with an 

individual’s account in their new 

employer’s plan. Third, moving assets 

from a Default IRA to a DC plan would 

likely provide greater investment 

returns, on average, as the assets are 

reallocated from being invested in 

money market funds to target date funds 

and other, more diversified investments. 

5.1.1. Account Consolidation 

One potential outcome of a highly 

mobile labor force (one in which 

employees change jobs frequently) is the 

proliferation of retirement accounts. 

Data from the Federal Reserve indicates 

that approximately 20 percent of 

employees with a DC plan account and 

household incomes below $50,000 

changed jobs in the past year.96 As 

participants change jobs, mandatory 

distributions into a Default IRAs can 

result in individuals owning several 

retirement accounts.97 Once potential 

outcome of multiple accounts is 

individuals paying management or 

recordkeeping fees for several accounts. 

GAO reported a median annual recordkeeping flat fee of $42 per account. 

Although modest, this fee can 

contribute to an erosion of accumulated 

retirement assets, especially if applied 

to multiple, small-balance accounts.98

Thus, each account consolidation 

provides a benefit to participants equal 

to the value of any associated fees or 

expenses arising from maintaining an 

additional retirement account that 

would be eliminated through 

consolidation net of the transfer fee 

discussed in section 6.4 of the Costs 

section below. Accordingly, the 

Department estimates that over the 10- 

year estimation window, account 

consolidations will total approximately 

3.7 million additional accounts when 

compared to the baseline, yielding 

approximately $689 million in 

undiscounted benefits for participants 

accruing from the reduction of 

duplicative fees for multiple accounts 

over the 10-year estimation period.99

5.1.2. Missing Participants and 

Abandoned Accounts 

Another consequence of the 

proliferation of small-balance accounts 

is the potential for a high volume of 

retirement assets that are ‘‘abandoned’’ 

by participants. Over time, DC plan 

account holders that have separated 

from their employers may become 

disconnected from their retirement 

assets as a result of mandatory 

distributions into Default IRAs. 

Abandonment of these accounts may be 

attributable to any number of reasons 

but are often the result of participants 

that are missing (cannot be found by the 

plan provider), unresponsive (failing to 

respond to communications from the 

plan provider), or unaware that an 

account has been established on their 

behalf. Goodman, Mukherjee, and 

Ramnath (2023) found that 0.4 percent 

of retirement-aged IRA owners 

abandoned their IRAs, amounting to $66 

million (in 2016 dollars).100 Because 

this figure only relates to retirees, it 

represents only a fraction of the assets 

that exist in abandoned IRAs for the 

larger pool of IRA owners of all ages; a 

portion of these IRA owners would have 

been impacted by mandatory 

distributions. The Department estimates 

that 1.0 percent of Default IRA owners 

will abandon their IRAs, which is 

consistent with Goodman, Mukherjee, 

and Ramnath (2023).101 It seems likely 

that IRA owners who experienced forceouts may have higher abandonment 

rates than other IRA owners. Owners 

who experienced force-outs allowed 

themselves to be defaulted into an IRA 

instead of taking action to perform a 

rollover or obtain a cashout, indicating 

they may have a tendency to be unaware 

or passive, characteristics that may 

increase the likelihood of abandonment. 

From FY 2017 through FY 2023, EBSA 

benefit advisors have located 4,732 

participants through a joint initiative 

with the Pension Benefit Guaranty 

Corporation (PBGC) to connect 

individuals with retirement benefits 

valued at $227.6 million. 

Given the threshold for mandatory 

distributions increases to $7,000 in 2024 

while the adoption of auto-enrollment 

policies by plan sponsors continues to 

expand, there will be an increased 

number of potential Default IRAs, and, 

as a result, the number of accounts that 

might be abandoned or have missing 

participants will also increase.102

However, over time the Department 

estimates a minimum of approximately 

37,000 accounts will be saved from 

abandonment with the statutory 

exemption over the 10-year estimation 

period (1.0 percent of the approximately 

3.6 million accounts that will be 

consolidated through automatic 

portability transactions when compared 

to the baseline). The Department further 

estimates the consolidation of 

abandoned accounts would provide 

approximately $109.6 million in 

undiscounted benefits for participants 

over the 10-year estimation window 

when compared to the baseline.103 The 

Department requests comment on these 

estimates. 

5.1.3. Improve Asset Allocation 

Upon job separation, some employees 

with small-balance accounts between 

$1,001 and $7,000 (in 2024) 104 can be 

forced out of their previous employer’s 

plan by a mandatory distribution of 


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105Code section 401(a)(31)(B); see SECURE 2.0 

Act, Sec. 304, Updating Dollar Limit for Mandatory 

Distributions. 

106 29 CFR 2550.404a–2(c)(3)(i). 

107 Government Accountability Office (GAO). 

‘‘401(k) Plans: Greater Protections Needed for 

Forced Transfers and Inactive Accounts.’’ (2014). 

108 Goodman, Mukherjee, and Ramnath, ‘‘Set It 

and Forget It,’’ 2023. Investment Company Institute. 

‘‘The IRA Investor Profile.’’ 2018. 80% is an 

estimate of the share of IRAs below the current 

mandatory distribution threshold of $5,000, 

established from a rollover, that remain fully 

invested in money market funds after one year of 

opening. See Figure A.2 in the Appendix. 

109 Government Accountability Office (GAO). 

‘‘401(k) Plans: Greater Protections Needed for 

Forced Transfers and Inactive Accounts.’’ (2014). 

110 Id. 

111Returns from DC plans are estimated using an 

asset distribution characteristic of typical default 

investments for TDFs, 80% stocks (S&P 500 annual 

returns) and 20% bonds (Baa Corporate returns). 

Returns for Default IRAs are estimated using an 

asset distribution characteristic of typical default 

investments for Default IRAs, 98% Treasury Bills 

and 2% Treasury Bonds. NYU Stern School of 

Business. Historical Returns on Stock, Bonds, and 

T-Bills: 1928–2022. Accessed: https://

pages.stern.nyu.edu/∼adamodar/New_Home_Page/ 

data.html. At a discount rate of 3 percent, this 

results in $1,699,169,773 in benefits. At a discount 

rate of 7 percent, this results in $1,422,157,975 in 

benefits. 

their accumulated retirement assets that 

is automatically rolled over to a Default 

IRA.105 The Department has issued 

regulations providing a safe harbor that 

requires the employee’s former 

employer to invest amounts held in a 

Default IRA in an investment product 

that preserves principal and provides a 

reasonable rate of return.106 In practice, 

many plans seek to implement the safe 

harbor by investing in money markets 

funds; however, the tradeoff for relative 

safety is potential returns. A 2014 GAO 

study reported that the average return 

for money market funds in the 

preceding 10 years was 1.5 percent, 

considerably lower than the average 6.3 

percent return for target date funds 

common among 401(k) plans.107

Moreover, few participants take action 

to reallocate these default investments 

away from money market funds.108

The difference in the average rate of 

return between these two typical 

investment strategies could have a 

substantial impact on the value of 

retirement assets for investors with 

small-balance accounts, which are 

susceptible to capital erosion from fees 

and inflation. GAO projected 

investment outcomes over 30 years and 

found that an initial balance of $1,000 

was estimated to be valued at over 

$2,700 under the average returns for 

target-date funds (6.3 percent) but $0 

under the average returns for money 

market funds (1.5 percent), largely as a 

result of account fees outweighing 

minimal returns.109 This suggests that 

assets transferred into Default IRA 

accounts, which are typically invested 

in low-risk money market funds, could 

be better preserved and invested 

elsewhere.110 Consolidating these assets 

in a DC plan could improve the asset 

allocation of, and potentially better 

preserve, retirement assets for many 

retirement investors. 

As presented in table 4 of the Affected 

Entities section, the Department 

estimates that just over 10 million 

Default IRAs will be created in the tenyear estimation period, compared to 8.1 

million in the baseline, a change of 

approximately 2.0 million accounts. Of 

these 10 million Default IRAs, 8.3 

million are assumed to be in the 

automatic portability network under the 

rule (compared with 5.3 million at the 

baseline). The results are that 7.1 

million accounts will be moved into a 

new employer’s DC plan via automatic 

portability, compared with 3.4 million 

in the baseline, an improvement of 3.7 

million between the two scenarios. This 

results in an asset allocation with a 

more favorable return for account 

owners. 

Similar to the GAO analysis, the 

Department utilized updated data 

covering the 15 most recent years to 

estimate the returns to money market 

funds characteristic of Default IRAs and 

for target-date funds (TDFs) typical of 

DC plans, further supporting an analysis 

of how the change in asset allocation 

might potentially alter investment 

outcomes as a result of automatic 

portability transactions. Returns to 

money market funds from 2008 to 2022 

averaged 0.7 percent, while returns to 

TDFs averaged 8.1 percent over the 

same period. 

The Department estimates that this 

reallocation of assets from Default IRAs 

to DC plans would result in 

approximately $2.0 billion in additional 

benefits when compared to the baseline 

value.111

5.1.4. Reduced Participant Benefits 

Because More Participants Are Subject 

to Mandatory Distributions 

The increase in the mandatory 

distribution threshold from $5,000 to 

$7,000 means that some separating 

participants will have fewer choices 

about how to deal with their account. 

This reduces the net benefits for those 

plan participants. Prior to the passage of 

the SECURE 2.0 Act, many separating 

participants in this account balance 

range would have left their account in 

their former employer’s plan, but some 

of those participants would now be 

subject to a mandatory distribution into 

a Default IRA. If the account assets end 

up in a Default IRA, the Department 

expects that the participant would 

generally be worse off than in their 

former employer’s plan because the 

assets would be subject to little or no 

growth given that they typically would 

be invested in money market funds and 

subject to relatively high fees. Other 

separating participants in the $5,000 to 

$7,000 range may end up being rolled 

into a new employer’s plan; they would 

be better or worse off depending on how 

the services, products, and fees in the 

new employer’s plan compared to the 

former employer’s plan and depending 

on how long the assets lingered in the 

Default IRA before being rolled over into 

the new employer’s plan. Overall, the 

affected participants would be worse off 

on average. 

5.2. Benefits for Plans, Automatic 

Portability Providers, and Other Service 

Providers 

The estimated benefits for 

participants that are described in the 

preceding subsection result from the 

predictability the proposed rule 

provides to the marketplace. This 

predictability is intended to encourage 

the growth and efficiency of the 

automatic portability market. RCH/PSN 

will no longer need an administrative 

individual exemption or to apply to the 

Department for additional relief when 

the term PTE 2019–02 expires in 2024. 

For the same reason, the proposed rule 

removes barriers to entry for potential 

future automatic portability providers. 

The proposed rule will bring increased 

certainty to the robust network of 

entities involved in automatic 

portability arrangements, consisting of 

the automatic portability provider(s), 

recordkeepers, plans and plan sponsors, 

and plan participants and Default IRA 

owners, which will increase the reach, 

efficiency, and long-term viability of 

automatic portability transactions. 

5.3. Benefits for Financial Institutions 

Financial institutions would benefit 

from more assets being kept in 

consolidated, retirement savings 

accounts and being invested rather than 

being cashed out because the financial 

institutions would earn more fees. 

Cashouts from small balance accounts 

are typically taken as cash and spent. 

The loss of retirement assets associated 

with cashing out small balance accounts 

and Default IRAs will be considerably 

curtailed with the adoption of automatic 

portability programs by plans sponsors 

and recordkeepers. At job separation, a 

small balance account holder (who has 

an account with $5,000 or less, or 

beginning in 2024, an account with 

$7,000 or less) can be forced out of their 

former employer’s retirement plan. 


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112Using a 3 percent discount rate results in a 

cost savings of approximately $14,160,023, 

annualized to $1,416,002. Using a 7 percent 

discount rate results in a cost savings of 

approximately $12,073,029, annualized to 

$1,207,303. 

113 67 FR 17264, 85 FR 31884. 

114The Department estimates 96.1 percent of 

retirement investors receive disclosures 

electronically. This is the sum of the estimated 

share of retirement investors receiving electronic 

disclosures under the 2002 electronic disclosure 

safe harbor (58.3 percent) and the estimated share 

of retirement investors receiving electronic 

disclosures under the 2020 electronic disclosure 

safe harbor (37.8 percent). 

While a rollover may result in 

procedural or paperwork burdens for 

the participant, a cashout is often the 

most straightforward option. Automatic 

portability programs, however, have the 

potential to reduce such burdens for 

participants, resulting in a higher 

volume of rollovers and fewer cashouts. 

Because cashouts are negatively 

correlated with the size of account 

balances (i.e., small account balances 

are more likely to be cashed out), the 

likelihood of cashouts at future job 

separations is expected to decrease as 

more assets remain in an individual’s 

DC plan account, compounding the 

benefits of automatic portability 

transactions over time. 

TABLE 6—ACCOUNTING STATEMENT

Benefits: 

Non-Quantified: 

• Increased mandatory distribution threshold leads to cost savings for plans but reduced benefits for separating participants. 

• Increased ease of retirement planning due to account consolidation. 

Estimate 

(primary) 

Year dollar Discount rate 

(%) 

Period 

covered 

Annualized Monetized ($ Millions/Year) ........................................................................................... $191.12 2023 7 2024–2033 

234.19 2023 3 2024–2033 

Costs: 

Annualized Monetized ($ Millions/Year) .................................................................................... $1.21 2023 7 2024–2033 

1.42 2023 3 2024–2033 

Transfers: 

Non-Quantified: 

• Requiring automatic portability providers to offer the same terms to any plan will ensure sponsors not be restricted from engaging with more than one 

provider. This reduces barriers to entry, which is a transfer to providers entering the market, and encourages lower fees, which is a transfer to participants. 

• Increasing the mandatory distribution threshold will reduce participant choice in how they handle their accounts. Conversely, this will give sponsors increased latitude in how they handle accounts. No longer having to administer small accounts is a transfer from participants to sponsors. 

• Decreasing the number of Default IRA accounts will affect financial institutions that service these accounts. This will represent a transfer to institutions 

that service employer plans. 

Annualized Monetized ($ Millions/Year) ........................................................................................... 52.00 2023 7 2024–2033 

65.55 2023 3 2024–2033 

6. Costs 

This analysis estimates the changes to 

cost burdens associated with the 

provision of automatic portability 

services under the proposed rule when 

compared to a baseline where the 

automatic portability provider operates 

under PTE 2019–02. The costs 

presented can be generally grouped into 

two categories: start-up and ongoing. 

The start-up costs are associated with 

updating processes or documents to 

bring existing practices into compliance 

with the proposed rule where there is a 

difference between operations under the 

PTE when compared to the proposed 

rule. The ongoing costs generally 

represent costs incurred due to both the 

increase in the threshold from $5,000 to 

$7,000 which is expected to create more 

default IRA accounts which is the group 

that automatic portability transactions 

occur within, and the growth of the 

automatic portability system which is 

assumed to result from the proposed 

rule. Over the first 10 years, the 

Department estimates an undiscounted 

cost of approximately $16,206,196, 

annualized to $1,620,620.112 The 

undiscounted stream of estimated costs 

is presented in table 7 below. 

TABLE 7—ESTIMATED COSTS ASSOCIATED WITH RULE

[$ in thousands] 

Year 1 2 3 4 5 6 7 8 9 10 Total 

Materials and Postage .......... $2 $3 $9 $14 $16 $19 $21 $22 $24 $23 $154 

Labor Costs ........................... 6,206 88 572 895 1,041 1,226 1,415 1,483 1,580 1,547 16,052 

Total All Cost ................. 6,208 90 581 909 1,057 1,245 1,436 1,505 1,604 1,570 16,206 

Present Value of Total Cost: 

3 Percent ........................ 6,027 85 532 808 912 1,042 1,168 1,188 1,229 1,168 14,160 

7 Percent ........................ 5,802 79 474 693 754 829 894 876 872 798 12,073 

6.1. Preliminary Assumptions and Cost 

Estimate Inputs 

For purposes of this analysis, the 

Department assumes that the percent of 

retirement investors receiving electronic 

disclosures would be similar to the 

percent of plan participants receiving 

electronic disclosures under the 

Department’s 2002 and 2020 electronic 

disclosure safe harbors.113 Accordingly, 

the Department estimates that 96.1 

percent of the disclosures sent to plan 

participants would be sent 

electronically, and the remaining 3.9 

percent would be sent by mail.114 For 

disclosures sent by mail, the 

Department estimates that entities will 


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115United States Postal Service. ‘‘First-Class 

Mail.’’ (2023). https://www.usps.com/ship/firstclass-mail.htm. 

116 Internal DOL calculation based on 2023 labor 

cost data. For a description of the Department’s 

methodology for calculating wage rates, see https:// 

www.dol.gov/sites/dolgov/files/EBSA/laws-andregulations/rules-and-regulations/technicalappendices/labor-cost-inputs-used-in-ebsa-opr-riaand-pra-burden-calculations-june-2019.pdf. 

117The hour burden is estimated as: 185,000 plan 

fiduciaries × 2/60 hours = 6,167 hours. The 

equivalent cost is estimated as: 185,000 plan 

fiduciaries × 2/60 hours × $63.45 = 391,275. 

118 60,265 additional transactions × $22.50 

transaction fee = $1,355,963 in year 1. In years 2– 

10, an average of 399,341 additional transactions × 

$22.50 per transaction = $8,985,163. 

incur a cost of $0.66 115 for postage and 

$0.05 per page for material and printing 

costs. 

Additionally, the Department assumes 

that several types of personnel would 

perform the tasks associated with 

information collection requests at an 

hourly wage rate of $63.45 for clerical 

personnel, $128.11 for a top executive, 

$116.86 for an auditor, $132.93 for a 

plan fiduciary, $155.61 for a web 

designer, $159.34 for a legal 

professional, and $190.63 for a financial 

manager.116

6.2. Acknowledgement of Fiduciary 

Status 

Pursuant to the statutory text 

authorizing the Secretary to specify the 

time and format of such an 

acknowledgment, § 2550.4975f–12(b)(1) 

of this proposed regulation requires the 

automatic portability provider to 

acknowledge in writing that it is a 

fiduciary as defined in Code section 

4975(e)(3) upon being engaged by a plan 

fiduciary, as well as in the required 

notices and disclosures to plan 

participants and IRA owners that are 

described below. 

The automatic portability provider’s 

acknowledgment of its fiduciary status 

may include a description of the scope 

of the fiduciary status of the automatic 

portability provider and may explain 

that the automatic portability provider 

is not a fiduciary, consistent with Code 

section 4975(e)(3), with respect to any 

assets or administration of the plan or 

IRA with respect to which the automatic 

portability provider does not (1) have 

any discretionary authority, 

discretionary control or discretionary 

responsibility, (2) exercise any authority 

or control, and (3) render investment 

advice for a fee or other compensation, 

nor have any authority or responsibility 

to render such investment advice. 

Although PTE 2019–02 discussed 

RCH’s fiduciary status, it did not 

explicitly require a fiduciary 

acknowledgement as a condition of the 

exemption. Therefore, the proposed 

regulation has the potential to 

incrementally increase the costs to RCH/ 

PSN. The Department assumes the time 

it would take to draft the fiduciary 

acknowledgment would be minimal and 

anticipates that a single standard 

acknowledgement would be included in 

contracts with plan sponsors. If 

language is not already included in 

contracts, the Department estimates that 

RCH/PSN would send a one-page 

supplemental acknowledgement to each 

plan sponsor with an estimated cost of 

$159 in legal costs to develop the 

supplemental acknowledgement and 

$391,275 in clerical costs 117 to provide 

the notices to the estimated 185,000 

plans RCH/PSN currently services at an 

incremental cost of $2.12 per plan. 

Contracts executed after the date of a 

final rule would likely incorporate the 

acknowledgement for a de minimis 

additional cost. 

The Department also anticipates the 

acknowledgement in each of the three 

notices to plans participants/IRA 

owners (initial enrollment, pretransaction, and post-transaction 

notices) would use a standardized and 

identical acknowledgment. The 

Department requests information about 

other costs associated with the 

requirement to disclose fiduciary status. 

6.3. Data Usage and Protection 

The statutory exemption specifically 

prohibits the automatic portability 

provider from marketing or selling data 

relating to the IRA or to the plan 

participants. Section 2550.4975f– 

12(b)(3) of the proposed regulation 

parallels the statutory language by not 

permitting the use of data for any 

purpose other than the execution of 

automatic portability transactions or 

locating missing participants. The 

Department is not proposing any 

exceptions to this restriction. A similar 

restriction was placed on RCH in PTE 

2019–02, so the Department does not 

expect an additional cost to RCH/PSN 

due to the proposal. 

The Department, however, did not 

include an express data protection 

condition in PTE 2019–02 similar to 

that included in the proposed 

regulation. Therefore, compared to 

existing requirements on RCH/PSN, the 

Department expects that the proposed 

regulation could add costs. However, 

the Department also expects that these 

costs would fall under normal operating 

expenses borne by businesses when 

dealing with the types of sensitive data 

necessarily required to execute 

automatic portability transactions. The 

Department requests comment on this 

assumption. 

6.4. Cost of Transactions Fees 

As previously discussed, there is a 

transaction fee stated to be roughly 

between $15 and $30 per transferred 

account, depending on the account 

balance. This fee is applied only when 

a transfer occurs and is deducted from 

the funds in the account being 

transferred. The Department estimates 

there to be an additional 60,265 

transactions in year one, and an average 

of 399,341 transactions annually in 

years two through ten. The Department 

uses the mid-point of the fee range 

stated, $22.50, as the expected average 

fee. Therefore, the Department estimates 

the aggregate transaction fees to be 

approximately $1.4 million in year one, 

and period two through ten to have 

aggregate fees on average of nearly $9 

million per year.118

6.5. Notices and Disclosures 

6.5.1. Notice to the Secretary of Labor 

Under the proposed regulation, 

within 90 calendar days of the date that 

the automatic portability provider 

begins operating an automatic 

portability transaction program that is 

intended to rely on prohibited 

transaction relief provided by Code 

section 4975(d)(25), the automatic 

portability provider must notify the 

Secretary at auto-portability@dol.gov 

that it is operating as an automatic 

portability provider in accordance with 

Code section 4975(d)(25). The automatic 

portability provider must report the 

legal name of each business entity 

relying upon the exemption and any 

name (e.g., trade or DBA name) the 

business entity may be operating under. 

This notification needs to be updated to 

report a change to the legal or operating 

name(s) of the automatic portability 

provider that is relying upon the 

exemption. 

Because PTE 2019–02 was issued to a 

single entity, there was no such 

requirement in the exemption. However, 

the Department believes based on the 

small number of expected automatic 

portability providers entering the 

market, that the possible cost burden 

associated with submitting the simple 

notice via email to the Department to be 

roughly $16, which is estimated as 15 

minutes of a clerical worker’s time with 

an hourly wage rate of $63.45. While 

this notification would need to be 

updated to report a change to the legal 

or operating name(s) of the automatic 

portability provider that is relying upon 

the exemption, the Department expects 

that such a change would be rare and 

thus does not estimate an associated 

cost. 


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119The Department assumes RCH will combine 

these notices as a cost savings measure, resulting in 

6,117,708 fewer notices needing to be prepared and 

sent over the 10-year period. The cost savings is 

calculated as –6,117,708 notices × 2/60 hours to 

prepare each notice on average × $63.45 wage rate 

for clerical staff = ¥$12,938,952.42, annualized to 

$1,293,895.24. 

120The materials and mailing burden is 

calculated as: Year one—665,458 fewer notices 

required × 3.9% mailed = 25,953 fewer notices. 

Each notice is estimated as 5 pages and mailed first 

class at a cost of $0.66 per notice. The cost is (5 

pages × $0.05 per page) = $0.25 per notice + $0.66 

for postage, resulting in a cost of $0.91 per notice. 

$0.91 × –25,953 fewer notices = a savings of 

S23,617.10. Subsequent years average: 605,806 

fewer notices required × 3.9% mailed = 23,626 

fewer notices. Each notice is estimated as 5 pages 

and mailed first class at a cost of $0.66 per notice. 

The cost is (5 pages × $0.05 per page) = $0.25 per 

notice + $0.66 for postage, resulting in a cost of 

$0.91 per notice. $0.91 × 23,626 fewer notices = a 

savings of $21,500.04. 

121The materials and mailing burden is 

calculated as: Year one 61,121 notices × 3.9% 

mailed = 2,384 notices. Each notice is estimated as 

2 pages and mailed first class at a cost of $0.66 per 

notice. The cost is (2 pages × $0.05 per page) = 

$0.10 per notice + $0.66 for postage, resulting in a 

cost of $0.76 per notice. $0.76 × 2,384 notices = 

S1,811.63. Subsequent years average: 384,265 × 

3.9% mailed = 14,986 notices. Each notice is 

estimated as 2 pages and mailed first class at a cost 

of $0.66 per notice. The cost is 2 pages × $0.05 per 

page) = $0.10 per notice + $0.66 for postage, 

resulting in a cost of $0.76 per notice. $0.76 × 

14,986 notices = $11,389.60. 

6.5.2. Fee and Compensation Disclosure 

The proposed regulations incorporate 

the existing standard regarding 

reasonable compensation for the 

provision of services found at 26 CFR 

54.4975–6(e). This proposed regulation 

mirrors the text of the statutory 

exemption by requiring the automatic 

portability provider to disclose the 

information that a service provider to 

the plan would be required to disclose 

under 29 CFR 2550.408b–2(c) to a 

responsible plan fiduciary of the 

transfer-in plan. For purposes of this 

requirement, the disclosures would 

relate to the automatic portability 

provider’s services performed as an 

automatic portability provider but not to 

other services that may be provided. 

The proposed regulation includes text 

that mirrors the statutory text allowing 

a direct fee to be paid by a plan sponsor 

if it is in lieu of a fee imposed on an 

IRA owner. The proposed regulation 

includes one exception to the general 

restriction on third-party compensation. 

Specifically, under the proposal, an 

automatic portability provider would be 

able to share a portion of its fee or 

compensation with another automatic 

portability provider as long as the 

overall fee paid, directly or indirectly, 

by the plan or IRA does not increase as 

compared to the fees disclosed to plan 

fiduciaries, plan participants, and IRA 

owners. 

PTE 2019–02 requires RCH to fully 

disclose fees to a plan fiduciary and 

receive written approval from the plan 

fiduciary. Therefore, the Department 

expects that no change in cost will 

occur as a result of this requirement in 

the proposed regulation. 

6.5.3. Initial Enrollment Notice 

The Department proposes that the 

initial enrollment notice would include 

a variety of information regarding the 

nature of the automatic portability 

transaction and additional aspects of the 

IRA arrangement (the same information 

to be included in the pre-transaction 

notice), discussed below. The 

Department anticipates that this notice 

requirement could be satisfied by 

including the information in the notice 

otherwise required under Code section 

401(a)(31)(B) upon the establishment of 

a Default IRA. 

PTE 2019–02 requires a ‘‘Mandatory 

Distribution Letter’’ be sent to 

participants before establishing a 

Default IRA. PTE 2019–02 also requires 

a ‘‘Welcome Letter’’ to be sent to the 

same individual no later than three 

business days after the Default IRA 

receives the distributed assets. Together, 

these two letters must include all the 

information required in the initial 

enrollment notice in the proposed 

regulation. The Department estimates 

the revision and combination of these 

documents to satisfy the proposed rule 

will take an hour of an attorney’s time 

at a wage rate of $159.34 resulting in a 

total cost of $159.34 to RCH/PSN. 

Because RCH/PSN is permitted to 

consolidate the two notices required 

under PTE 2019–02 into a single notice, 

a burden savings of 22,182 hours in the 

first year and 20,194 hours in 

subsequent years of a clerical worker’s 

time with an equivalent cost savings of 

approximately $1.3 million each year 

would result.119

The mailing and material costs are 

also expected to be reduced due to the 

combination of two notices into one. As 

previously noted, the Department 

assumes that 3.9 percent of recipients 

enumerated in the previous paragraph 

will receive mailed notices, and that the 

remainder will receive notices 

electronically, resulting in roughly 

665,458 fewer notices in the first year 

and on average 605,806 fewer in 

subsequent years being mailed. since 

the initial enrollment notice provides an 

opportunity for RCH/PSN to consolidate 

two notices into one. This reduction of 

notices being sent has an associated 

estimated cost savings of nearly $23,600 

in the first year and $21,500, on average, 

in subsequent years.120

6.5.4. Pre-Transaction Notice 

Section 2550.4975f–12(b)(5)(iv) of the 

proposed regulation incorporates the 

statutory provisions of Code section 

4975(f)(12)(B)(v). The proposed 

regulation provides additional 

clarification regarding the timing of the 

pre-transaction notice by requiring that 

the notice be sent no earlier than 90 

days in advance of the automatic 

portability transaction. 

PTE 2019–02 included a pretransaction notice, referred to as a 

‘‘Consent Letter.’’ The letter is required 

to be sent before moving Default IRA 

assets into a transfer-in plan after the 

locate and match service makes a match. 

The content of the Consent Letter is 

substantially the same as the pretransaction notice required by the 

statute and incorporated into the 

proposed regulation. The Department 

believes there will be a minimal 

transition cost to RCH/PSN attributable 

to bringing the ‘‘Consent Letter’’ into 

compliance to serve as the pretransaction notice. This is estimated to 

take one hour of a legal professional’s 

time at a wage rate and total cost of 

$159.34. 

The Department estimates that there 

will be a 61,121 increase in pretransaction notices in the first year and 

that there will be, on average, 384,265 

additional notices in subsequent years. 

This increase will result in roughly 

2,037 hours in year one and, on average, 

12,809 hours in subsequent years of 

clerical workers’ time at 2 minutes per 

notice on average, at a rate of $63.45 for 

a total net cost of roughly $129,271 in 

year one and, on average, $812,720 in 

subsequent years. The notices are 

expected to consist of no more than two 

pages. The mailing and materials cost 

associated with the pre-transaction 

notices are estimated as 2,384 notices 

being sent in the first year at an 

estimated cost of $1,812 and, on 

average, 14,986 notices sent in 

subsequent years with an estimated 

average cost of $11,390.121

6.5.5. Post-Transaction Notice 

This post-transaction notice, which 

would occur after a transfer-in plan 

receives an individual’s IRA funds, is 

the last notice that the automatic 

portability provider would be required 

to provide to the IRA owner or plan 

participant. Section 2550.4975f– 

12(b)(5)(v) of this proposed regulation 

incorporates the statutory requirements. 

The statute requires that no later than 

three business days after the completion 

of an automatic portability transaction, 

the automatic portability provider shall 


ddrumheller on DSK120RN23PROD with PROPOSALS2
5652 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

122 Values calculated as follows: Year 1—397,749 

notices × 2/60 clerical hours = 13,258 burden hours. 

$63.45 clerical worker wage × 13,258 burden hours 

= $841,239. Subsequent years: 736,825 notices × 2/ 

60 clerical hours = 24,561 burden hours. $63.45 

clerical worker wage × 25,572 burden hours = 

$1,558,384. 

123The relevant ACS data set used is the U.S. 

Census, 2016–2020 American Community Survey 5- 

Year Estimates, Table B16001, Language Spoken at 

Home by Ability to Speak English for the 

Population 5 Years and Over, available at https:// 

data.census.gov/cedsci/table?tid=ACSDT5Y20

20.B16001. 124American Translators Association, How Much 

Does a Translation Cost? (May 2023), https://

www.atanet.org/client-assistance/how-much-doestranslation-cost/. 

125Lettier, Mariel, Translation Rates in 2023—A 

Complete Guide, Rush Translate, (2023), https://

rushtranslate.com/blog/translation-rates#:∼:text=

for%201000%20words.-,What%20

is%20the%20average%20rate

%20for%20translation%20

per%20page%3F,certified%20

translation%20and%20charges%20%2424.95. 

provide notice to the IRA owner of the 

actions taken by the automatic 

portability provider with respect to the 

IRA. The statute also requires the notice 

to include all relevant information 

regarding the location and amount of 

any transferred assets, a statement of 

fees charged against the IRA or transferin plan account in connection with the 

transfer, and a customer service contact 

phone number for the automatic 

portability provider. 

PTE 2019–02 did not require a posttransaction notice. Therefore, as 

compared to the statutory requirements, 

this new requirement has the potential 

to add cost to PSN/RCH as an automatic 

portability provider. The Department 

estimates the development of a model 

notice will take a legal professional two 

hours at an hourly wage rate of $159.34 

for a total cost of $319 in the first year. 

The Department estimates that in the 

first year 397,749 notices will be sent to 

account owners and, on average, 

736,825 notices to IRA owners 

subsequent years within the projection 

window creating an hour burden of 

13,258 and 24,561 respectively, 

assuming 2 minutes per notice, on 

average, of clerical workers’ time. The 

post-transaction notice is expected to be 

no longer than two pages. Therefore, the 

Department estimates an equivalent cost 

of approximately $0.8 million in the 

first year and an average of $1.6 million 

in each subsequent year within the 

projection window.122

As discussed at the beginning of this 

section, the Department estimates that 

3.9 percent of the notices would be sent 

by mail. The Department estimates that 

an automatic portability provider would 

incur a cost of $0.76 to send each 

disclosure, which is comprised of $0.66 

for postage and $0.10 for the paper and 

printing costs of two pages. Therefore, 

the materials and postage costs are 

estimated as 15,512 notices at $0.76 per 

notice totaling $11,789 in the first year 

and an average of 28,736 notices at 

$0.76 per notice totaling $21,839, on 

average, in years 2 through 10. 

6.5.6. Culturally and Linguistically 

Appropriate Notices 

The proposed regulation would 

require that notices and disclosures to 

participants and IRA owners be 

provided in a culturally and 

linguistically appropriate manner if 

their address is in a county where 10 

percent or more of the population is 

literate only in the same non-English 

language. To determine whether a 

county meets this threshold, the 

Department relies on American 

Community Survey (ACS) data 

published by the United States Census 

Bureau. In the 2016–2020 ACS data, 230 

counties or county equivalents met or 

exceeded the 10 percent threshold 

(rounded to the nearest percent).123

In these counties, the automatic 

portability provider must include in the 

English versions of all required notices 

and disclosure, a statement prominently 

displayed in any applicable non-English 

language, which clearly indicates how 

to access the language services provided 

by the automatic portability provider. 

The Department estimates that 

satisfying this requirement would result 

in a de minimis cost. The automatic 

portability provider would also be 

required to provide oral language 

services (such as a telephone customer 

assistance hotline) that include 

answering questions in any applicable 

non-English language and providing 

assistance with automatic portability 

transactions in any applicable nonEnglish language. 

Additionally, the automatic 

portability provider would be required 

to provide, upon request, a notice or 

disclosure in any applicable, nonEnglish language. In the 2016–2020 

ACS, the Department identified eight 

languages that met the 10 percent 

threshold in at least one county. The 

eight languages were Spanish, Chinese, 

Navajo, Tagalog, Samoan, Carolinian, 

and Chamorro. For the purposes of this 

analysis, the Department estimates that 

an automatic portability provider will 

need to translate the notices into eight 

languages. Document translation costs 

vary depending on the length of the 

document, the complexity of the 

document, and the complexity of the 

language.124 One source estimates that 

the average translation cost per page 

ranges between $20 and $130.125 Due to 

the potential complexity of the 

documents, the Department assumes the 

cost will be towards the higher-end of 

the range and therefore, on average, it 

will cost $100 per page to translate the 

notices in this proposal. The 

Department requests comment on this 

cost assumption. The translation costs 

for the initial enrollment notice, pretransaction notice, and the posttransaction notice are summarized in 

the table below. 

TABLE 8—TRANSLATION COSTS

Languages Pages Cost per page Cost 

Initial Enrollment Notice ................................................................................... 8 5 $100 $4,000 

Pre-Transaction Notice .................................................................................... 8 2 100 1,600 

Post Transaction Notice .................................................................................. 8 2 100 1,600 

Total .......................................................................................................... ........................ 9 ........................ 7,200 

A similar analysis conducted by the 

Department estimated that the average 

requests for translations of written 

documents averages 0.098 requests per 

1,000 health benefit plan members.126

For the purposes of this analysis, the 

Department assumes that recipients of 

the notices in this proposal would 

request translations at the same rate. 

The estimated number of translated 

notices requested is summarized in the 

table below. The Department requests 

comment on how frequently translations 

would be requested for such notices. 


ddrumheller on DSK120RN23PROD with PROPOSALS2
Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 5653 

TABLE 9—TRANSLATED NOTICES REQUESTED

Year 1 Years 2–10 

(average) 

Initial Enrollment Notice: 

Total Initial Enrollment Notice .......................................................................................................................... 954,786 1,014,438 

× Percent Requesting Translated Notice ......................................................................................................... 0.0098% 0.0098% 

= Translated Notices Distributed ...................................................................................................................... 94 100 

Pre-Transaction Notice: 

Total Pre-Transaction Notice ............................................................................................................................ 403,397 747,287 

× Percent Requesting Translated Notice ......................................................................................................... 0.0098% 0.0098% 

= Translated Notices Distributed ...................................................................................................................... 40 74 

Post-Transaction Notice: 

Total Post-Transaction Notice .......................................................................................................................... 397,749 736,825 

× Percent Requesting Translated Notice ......................................................................................................... 0.0098% 0.0098% 

= Translated Notices Distributed ...................................................................................................................... 39 73 

Total Translated Notices Distributed ....................................................................................................................... 173 246 

Note: Components may not sum to parts due to rounding. 

The Department assumes that it 

would take a clerical professional two 

minutes to prepare and send each 

disclosure. The Department assumes 

that all of the translated notices would 

be sent by mail. The Department 

requests comment on this assumption. 

Additionally, the Department estimates 

that an automatic portability provider 

would incur a cost of $0.76 to send each 

disclosure, including $0.66 for postage 

and $0.05 for the printing costs of each 

page. The hour burden, equivalent cost, 

postage, and material costs are 

summarized in the table below. 

TABLE 10—BURDEN TO PREPARE AND SEND TRANSLATED DISCLOSURES

Year 1 Years 2–10 

(average) 

Prepare and Send Notice (automatic portability provider): 

Number of Notices ............................................................................................................................................ 173 246 

× Annual Hour Burden per Transaction (Hours) .............................................................................................. 2/60 2/60 

= Total Hours .................................................................................................................................................... 5.8 8.2 

× Labor Cost (Clerical Professional) ................................................................................................................ $63.45 $63.45 

= Equivalent Cost ............................................................................................................................................. $366 $528 

Material and Postage Cost (automatic portability provider): 

Initial Enrollment Notices: 

Number of Notices Sent by Mail ...................................................................................................................... 94 100 

× Postage and Material Cost per Notice (5 Pages) ......................................................................................... $0.91 $0.91 

= Postage and Material Cost ........................................................................................................................... $86 $91 

Pre-Transaction Notices: 

Number of Notices Sent by Mail ...................................................................................................................... 40 74 

× Postage and Material Cost per Notice (2 Pages) ......................................................................................... $0.76 $0.76 

= Postage and Material Cost ........................................................................................................................... $30 $56 

Post-Transaction Notices: 

Number of Notices Sent by Mail ...................................................................................................................... 39 73 

× Postage and Material Cost per Notice (2 Pages) ......................................................................................... $0.76 $0.76 

= Postage and Material Cost ........................................................................................................................... $30 $55 

Total Hour Burden ................................................................................................................................................... 6 8 

Total Equivalent Cost .............................................................................................................................................. $366 $528 

Total Postage and Material Cost ............................................................................................................................. $146 $202 

Note: Components may not sum to parts due to rounding. 

6.5.7. Summary Plan Description 

The Department proposes a 

requirement that the automatic 

portability provider provide the 

administrator of participating plans 

with a model description of the 

automatic portability program, 

including fees and expenses, that the 

administrator could use in fulfilling its 

SPD obligations, as applicable. 

PTE 2019–02 included an SPD 

condition but was silent on which party 

had the obligation to ensure 

compliance. However, given the fact 

that RCH was the entity in control of the 

fees, the Department expects that the 

SPD condition of PTE 2019–02 would 

have been fulfilled in a manner similar 

to that in the proposed regulation. 

Therefore, the Department estimates no 

additional incremental burden to RCH/ 

PSN as a result of the proposed 

regulation. 

6.6. Searches 

The proposed regulation parallels the 

Code section 4975(f)(12)(B)(viii) 

requirement that the automatic 

portability provider query on at least a 

monthly basis whether any individual 

with an IRA has an account in a 

transfer-in plan. Under the proposal, the 

automatic portability provider must 

perform ongoing participant address 

validation searches via automated 

checks of National Change of Address 


ddrumheller on DSK120RN23PROD with PROPOSALS2
5654 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

127The hour burden is estimated as: 1 automatic 

portability provider × (10 hours) = 10 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × (10 hours) × $159.34 = 

$1,593.40, rounded to $1,593. 

128The hour burden is estimated as: 1 automatic 

portability provider × (30/60 hours) = 30/60 hours. 

The equivalent cost is estimated as: 1 automatic 

portability provider × (2 hours) × $159.34 = 

$318.69, rounded to $319. 

records, two separate commercial 

locator databases, any internal databases 

maintained by the automatic portability 

provider, and a manual internet-based 

search if a valid address is not obtained 

from the automated checks. The 

proposal would require these 

verification steps to be performed at 

least twice in the first year an account 

is entered into the automatic portability 

provider system and once a year 

thereafter. 

PTE 2019–02 included an identical 

requirement regarding monthly 

searches. The Department assumes that 

this process is automated via technology 

and has de minimis marginal cost with 

respect to number or records being 

searched; therefore, this aspect of the 

proposal is not expected to add 

additional cost to RCH/PSN. PTE 2019– 

02 also included a general requirement 

to take ‘‘all prudent actions necessary to 

reasonably ensure that the Plan’s 

participant and beneficiary data is 

current and accurate.’’ Although RCH 

represented to the Department that it 

would perform address validation 

searches in line with the requirement in 

the proposed regulation, the condition 

in PTE 2019–02 did not specify the 

frequency of those searches nor the 

additional parameters in the proposal 

regarding participant address validation 

searches. The Department believes, due 

to the representation from RCH in 

connection with the individual 

exemption, that the proposed regulation 

will therefore not add additional cost. 

However, the Department requests 

comment on whether the current 

framework for executing automatic 

portability transactions of RCH/PSN is 

expected to include a process for 

ongoing address validation searches for 

Default IRAs that are included in the 

arrangement (i.e., those which are 

eligible to be moved into a transfer-in 

plan through the execution of an 

automatic portability transaction). 

6.7. Monitoring Transfers 

Section 2550.4975f–12(b)(7) of the 

proposed regulation requires that the 

automatic portability provider ensure 

that each transfer-in plan for whom the 

automatic portability provider performs 

automatic portability transactions 

designates a plan official responsible for 

monitoring transfers into the plan and 

confirming that amounts received on 

behalf of a participant are invested 

properly. 

Although the Department believes 

that monitoring transfers is a necessary 

component of an automatic portability 

arrangement, PTE 2019–02 did not 

include a condition explicitly 

mandating that a plan official monitor 

transfers into the plan. As compared to 

PTE 2019–02, the Department does not 

believe the proposed requirement 

regarding monitoring transfers will 

likely add cost because that should be 

a normal act of routine plan 

administration when assets are rolled 

into a plan. 

6.8. Policies and Procedures 

Section 2550.4975f–12(b)(9) 

incorporates the statutory limitation on 

discretion and expands upon the 

statutory text by specifying that an 

automatic portability provider will be 

deemed to satisfy the limited discretion 

requirement if it establishes, maintains, 

and follows policies and procedures 

regarding the process for executing 

automatic portability transactions. 

PTE 2019–02 included a condition on 

the limitation of discretion but did not 

include a policies and procedures 

component that would result in the 

condition being satisfied. The 

Department believes that it would be 

standard business practice for RCH/PSN 

to have policies and procedures in place 

to govern the various conditions of PTE 

2019–02 to ensure that all automatic 

portability transactions are executed 

consistently and in a manner that can be 

independently audited. Although an 

automatic portability provider is not 

required to establish the policies and 

procedures to satisfy the limited 

discretion aspect of the statute and 

proposed regulation, the Department 

anticipates that RCH/PSN will choose to 

take advantage of the ‘‘deemed 

satisfied’’ aspect of the proposed 

regulation. The Department assumes 

that a legal professional with a wage rate 

of $159.34 will spend 10 hours 

reviewing the existing policies and 

procedures to ensure compliance with 

the requirements in the proposed rule, 

resulting in an equivalent cost of 

$1,593.40.127 In subsequent years, 2 

hours is assumed for a legal professional 

to review and update the procedures at 

an estimated cost of $319 per annum.128

6.9. Audit 

Code section 4975(f)(12)(B)(xi) 

includes an annual audit requirement to 

be conducted in accordance with 

regulations promulgated by the 

Secretary. The statute requires that an 

audit be conducted that demonstrates 

compliance with Code section 

4975(f)(12) and any regulations 

thereunder and that identifies any 

instances of noncompliance with the 

statute or such regulations. The statute 

requires the automatic portability 

provider to submit a copy of the 

auditor’s report to the Secretary in such 

form and manner as specified by the 

Secretary. 

PTE 2019–02 required an annual 

audit conducted by an independent 

auditor. The auditor is required to 

review a representative sample of 

transactions and related undertakings, 

sufficient for the auditor to make a 

variety of determinations regarding 

compliance with PTE 2019–02. Those 

findings must then be included in a 

report that is sent to the Office of 

Exemption Determinations at the 

Department, the cost of which is 

discussed below. 

The timing for submission of the audit 

report in the proposed regulation 

follows the timing from PTE 2019–02. 

However, as compared to PTE 2019–02, 

the proposed regulation has a minor 

difference as a result of the proposed 

correction provisions. Rather than have 

the auditor submit the report directly to 

the Department as was the case under 

PTE 2019–02, the proposed regulation 

requires that the audit report shall be 

provided first to the automatic 

portability provider, who will thereafter 

submit the report to the Department 

after reviewing the audit report and 

certifying that it has done so. 

The parameters of the audit in the 

proposed regulation, while intended to 

align with the PTE 2019–02 audit, 

provide more detail regarding the form 

and content of the audit, in 

consideration of the statutory 

requirements and other areas where the 

Department has proposed requirements 

for the purposes of regulatory clarity. 

The audit requirement of the proposed 

regulation also accounts for the 

corrections that may occur in 

accordance with this proposal. PTE 

2019–02 did not specifically include 

correction parameters. The cost 

associated with the proposed correction 

mechanisms is described in the next 

section. 

The Department anticipates the audit 

parameters of the proposed regulation 

will add cost to RCH/PSN as compared 

to what they might otherwise have 

incurred under PTE 2019–02. First, the 

proposed regulation requires the audit 

report to include the total number of 

completed automatic portability 

transactions during the audit period. 

Second, the proposed regulation 

requires the audit report to address 

specifically whether, in the reviewed 


ddrumheller on DSK120RN23PROD with PROPOSALS2
Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 5655 

129The cost to update the contracts is calculated 

as: 185,000 participating plans × (15/60) hours × 

$134.93 plan fiduciary wage rate = $6,240,512.50. 

Accounting for the $159.34 cost for a lawyer to 

update the contract results in a total of 

$6,240,671.84, which is rounded in the text. 

130The cost to draft the certification is a one-time 

cost calculated as: 3 hours × $159.34 lawyer wage 

rate = $478.02, rounded to $478. A senior executive 

would need to execute the certification annually. 

The certification cost is calculated as (30/60) hours 

× $128.11 sr. executive wage rate = $64.06, rounded 

to $64. Therefore, the first year cost is $478.02 + 

$64.06 = 542.08. 

131The cost to support and transmit the audit by 

a clerical worker is estimated as: (5 hours × $63.45 

wage = $317.25) + ((15/60) hours × $63.45 wage rate 

= $15.86) = $333.11. 

sample, the appropriate accounts in the 

transfer-in plan received all the assets 

due as a result of the automatic 

portability transaction. 

Due to the increase in required 

actions for the audit, the Department 

estimates the proposed regulation will 

increase the cost of performing the audit 

by roughly 20 percent. The Department 

estimates audit costs in the absence of 

the proposed rule to be close to $25,000 

per year. Therefore, the Department 

estimates that the proposed rule will 

increase audit costs by approximately 

$5,000 per year. The Department seeks 

comment on this estimate. 

There are several actions the 

automatic portability provider will need 

to take in support of the audit 

requirements, which are outlined below. 

To ensure the accuracy of certain 

information that the Secretary is 

required to provide to Congress 

periodically, the proposed regulation 

requires the audit report to include 

information that was not specifically 

contemplated under PTE 2019–02, and 

which may not be directly in the 

automatic portability provider’s 

possession. If the information is not in 

the possession of the automatic 

portability provider, the proposed 

regulation requires the automatic 

portability provider to require 

contractually that the information to be 

provided in connection with its services 

as an automatic portability provider. If 

this obligation is not already included 

in RCH/PSN’s contracts with 

recordkeepers and plans, RCH/PSN may 

need to update those agreements. The 

Department estimates updating the 

standardized contracts would take a 

lawyer one hour at a wage rate and total 

cost of $159.34. Assuming that all 

185,000 plans currently covered by the 

automatic portability provider would 

have their contracts updated with the 

standard contract, the Department 

estimates that a plan fiduciary will 

spend 15 minutes to execute the 

updated contract. This results in a 

burden of 46,250 hours of plan 

fiduciaries’ time, at a wage rate of 

$134.93, resulting in a total cost of 

$6,240,513.129 Combining these two 

components of this portion of the 

proposed rule results in an equivalent 

cost of $6,240,672. 

Although anticipated under PTE 

2019–02, there was not an explicit 

condition for the automatic portability 

provider to include a certification filed 

with the written audit report, under 

penalty of perjury, that the automatic 

portability provider has reviewed the 

audit report. Nor was there a condition 

requiring the automatic portability 

provider to certify that it has addressed, 

corrected, or remedied any 

noncompliance or inadequacy in its 

compliance or has an appropriate 

written plan to address any such issues 

identified in the audit report. Because 

the Department believes RCH/PSN 

would necessarily be reviewing the 

audit under PTE 2019–02, it has not 

attributed a cost to that specific aspect 

of the proposed regulation. However, 

with respect to the certifications, the 

Department estimates that it will take a 

legal professional 3 hours to draft the 

certifications and a senior executive 30 

minutes to execute the certification, for 

an added cost of $542 in the first year 

and $64 in subsequent years.130

Finally, there would be additional 

resources expended in collecting and 

providing the additional records and for 

the plan to submit the audit report to 

the Department in place of the auditor. 

The Department estimates a clerical 

worker with a wage rate of $63.45 

would spend an additional 5 hours 

collecting and providing documentation 

and records for the audit and 

approximately 15 minutes sending the 

report once finalized. The resulting cost 

burden for these actions is $333.131

6.10. Corrections 

To effectuate the intent of this 

provision, the Department is proposing 

three components for corrections in the 

event the auditor determines the 

automatic portability provider was not 

in compliance with the statute and 

related regulations: an opportunity for 

an automatic portability provider to 

make certain self-corrections; additional 

recommendations from the auditor; and 

the Secretary requiring an automatic 

portability provider to submit to 

supplemental audits and corrective 

actions if significant compliance issues 

are uncovered. 

Although PTE 2019–02 did not 

include any correction provisions, the 

Department believes the availability of 

self-correction will generally provide a 

benefit to RCH/PSN as opposed to a 

cost. However, in connection with the 

proposed regulation’s correction 

provisions, the automatic portability 

provider must establish policies for the 

corrections permitted by the proposal. 

The Department expects that RCH/PSN 

will need to develop policies related to 

corrections that may not already be 

included in other pre-existing policies 

and procedures governing their 

program. The Department assumes the 

policies would be developed by an inhouse attorney with a wage rate of 

$159.34 and would take roughly 20 

hours resulting in a one-time cost of 

$3,187. 

Additionally, the proposed regulation 

also includes provisions relating to the 

auditor’s review of the automatic 

portability provider’s compliance that 

were not specifically included in PTE 

2019–02. If the auditor identifies any 

instances of noncompliance, then RCH/ 

PSN would be required by the proposal 

to correct those issues as soon as 

reasonably practicable. The Department 

believes there may be some added cost 

associated with remediating compliance 

issues. The Department lacks the 

information necessary to identify the 

extent of noncompliance issues that 

might be uncovered. However, in order 

to correct issues, the Department 

assumes that both a Senior Executive 

and a lawyer would likely be involved. 

The Department estimates each would 

spend 10 hours considering and 

developing remedies to audit findings. 

The cost for the lawyer is estimated as 

10 hours at a wage rate of $159.34 

resulting in a cost of $1,593. The cost for 

the Senior Executive is similarly 

estimated as 10 hours at a wage rate of 

$128.11 resulting in a cost of $1,281.10. 

Lastly, a summary of the corrective 

actions taken is to be sent to the auditor. 

The Department assumes that a clerical 

worker with a wage rate of $63.45 will 

spend two hours organizing and 

communicating the summary to the 

auditors, at a cost of $127. The total 

annual cost to address audit findings 

and communicate the summary of 

actions taken is estimated as the sum of 

these three costs, $3,001. 

The ability of the Department to 

impose additional supplemental audits 

and corrective actions could also add 

cost. For instance, if the Department 

were to impose a supplemental audit, 

the expected cost to RCH/PSN would 

likely be the same as the cost of the 

required annual audit. The Department 

estimates that no more than one 

supplemental audit would be imposed 

in any particular year, but also expects 

the imposition to be rare. To account for 

the possibility, the Department assumes 

one supplemental audit would occur in 


ddrumheller on DSK120RN23PROD with PROPOSALS2
5656 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

132The hour burden is estimated as: 1 automatic 

portability provider × (1 hour) = 1 hour. The 

equivalent cost is estimated as: 1 automatic 

portability provider × (1 hour) × $128.11 = $128.11, 

rounded to $128. 

133The hour burden is estimated as: 1 automatic 

portability provider × (5 hours) = 5 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × (5 hours) × $155.61 = 

$778.05, rounded to $778. 

134The hour burden is estimated as: 1 automatic 

portability provider × (1 hour) = 1 hour. The 

equivalent cost is estimated as: 1 automatic 

portability provider × (1 hour) × $155.61 = $155.61, 

rounded to $156. 

135U.S. Internal Revenue Service, ‘‘IRS Provides 

Tax Inflation Adjustments for Tax Year 2024’’ 

website at https://www.irs.gov/newsroom/irsprovides-tax-inflation-adjustments-for-tax-year2024#:∼:text=Marginal%20rates%3A%20

For%20tax%20year,for%20

married%20couples%20filing%20jointly).&text=

The%20lowest%20rate%20is

%2010,for%20married%20couples

%20filing%20jointly). 

the fifth year of the estimation window 

at a cost of $30,000, which is the 

estimated cost of the annual audit. 

If the Department were to impose a 

temporary prohibition on relying upon 

the statutory exemption, the cost to 

RCH/PSN associated with that would 

generally be a function of the number of 

automatic portability transactions 

multiplied by the revenue per 

transaction for the period in which they 

could not use the exemption. Due to the 

novelty of the arrangement, the 

Department currently lacks data to 

estimate the magnitude of this cost. 

6.11. Website 

The proposed regulation in paragraph 

(d) parallels the statutory language in 

Code section 4975(f)(B)(xii) requiring 

the automatic portability provider to: (1) 

maintain a website which contains a list 

of recordkeepers with respect to which 

the automatic portability provider 

carries out automatic portability 

transactions; (2) list all fees paid to the 

automatic portability provider; and (3) 

indicate the number of plans and 

participants covered by each 

recordkeeper. Under the proposed 

regulation, the list would have to 

include the fees and the identity of the 

party or account that is paying the 

particular fee. The proposal would also 

require the website to display automatic 

portability transaction-related 

information in a way that differentiates 

that information from other information 

or elements of the website (e.g., 

separately identifying the automatic 

portability transaction fees and services 

from fees and services in connection 

with establishing and maintaining 

custody of a Default IRA). 

PTE 2019–02 required a website that 

includes a list of all participating 

recordkeepers but did not require the 

additional detail regarding a list of all 

fees paid to the automatic portability 

provider, or the number of plans and 

participants covered by each 

recordkeeper. The Department 

anticipates that this information will be 

readily available to RCH/PSN and that 

they will update their website to 

include all the information in a format 

that meets the requirements in the 

proposed rule. 

The Department estimates that a 

Senior Executive would spend one hour 

providing a web designer the 

requirements for the disclosures in the 

first year, resulting in an equivalent cost 

of $128.132 Additionally, the 

Department estimates that it would take 

a web designer five hours to update and 

test the website in the first year, 

resulting in an equivalent cost of 

$778.133 The Department estimates that 

it would take a web developer one hour 

in subsequent years to make any 

necessary revisions or updates to the 

disclosures, resulting in an equivalent 

cost of $156.134

6.12. Limitations on Exculpatory 

Provisions 

The limitation on exculpatory 

provisions in the proposed regulation is 

substantially identical to the limitation 

in PTE 2019–02. Therefore, the 

Department anticipates no additional 

cost to RCH/PSN. 

6.13. Record Retention 

This proposed regulation incorporates 

the statutory language in Code section 

4975(f)(12)(xi)(I) regarding record 

retention by requiring an automatic 

portability provider to maintain, for not 

less than six years, records sufficient to 

demonstrate compliance with the 

requirements of the statute and this 

proposed regulation and make them 

available to authorized employees of the 

Department and the Department of the 

Treasury within 30 calendar days of a 

written request. 

PTE 2019–02 had a broader 

recordkeeping provision with respect to 

who could request records as compared 

to the statutory provision. The 

Department believes this could result in 

cost savings to RCH/PSN because plan 

fiduciaries and IRA owners can no 

longer request the records. However, the 

Department does not believe this will 

change the cost of retaining the records. 

The Department does not know how 

many plan fiduciaries or IRA owners 

would request records, but expects it 

would be infrequent, resulting in a de 

minimis cost reduction to RCH/PSN. 

7. Transfers 

7.1. Transfers Resulting From Open 

Participation 

Section 2550.4975f–12(g) of this 

proposed regulation parallels Code 

section 4975(f)(12)(B)(iv) by requiring, 

as a condition of the availability of the 

exemption, that the automatic 

portability provider offer automatic 

portability transactions on the same 

terms to any transfer-in plan. The 

Department is also proposing that open 

participation would require that the 

automatic portability provider not 

restrict or limit the ability of an 

employer-sponsored retirement plan, 

IRA custodian or IRA provider, or 

recordkeeper to engage other automatic 

portability providers to execute 

automatic portability transactions. PTE 

2019–02 required RCH to offer the 

program in a functionally identical 

manner as the open participation 

requirement of the statute. However, it 

did not include a condition similar to 

the proposed regulation requirement 

that ensures a plan sponsor is not 

restricted from engaging more than one 

automatic portability provider. Since 

this requirement reduces barriers to 

entry, it will tend to encourage RCH/ 

PSN to keep its fee low to discourage 

other automatic portability providers 

from competing in the market. This 

would represent a transfer from RCH/ 

PSN to participants in the form of lower 

fees and to other automatic portability 

providers (if others enter the market), in 

the form of lower barriers to entry. 

7.2. Transfer of Foregone Government 

Revenue to Participants 

Assets that stay in the tax-preferred 

retirement system rather than being 

cashed out will not be subject to regular 

income tax until a future date when 

they are distributed. They will also 

avoid altogether the 10 percent penalty 

tax on early distributions that would 

have applied to many cashouts. As the 

participants pay less in taxes, this 

represents a transfer from the 

government to participants in the form 

of increased tax expenditures 

supporting the retirement system. 

The Department estimates that over 

the ten-year estimation period the 

proposed rule will lead to 1.5 million 

fewer cashouts with a value of 

approximately $4.6 billion. The 

Department assumes that the marginal 

income tax rate for small account 

holders would be 12 percent.135 The 

Department also assumes that a 10 

percent tax penalty applies to half of the 

foregone cashouts. The other foregone 

cashouts are assumed to fall under one 

of the exceptions; for example, the 

separating participant turns 55 or older 


ddrumheller on DSK120RN23PROD with PROPOSALS2
Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 5657 

136U.S. Internal Revenue Service, ‘‘401(k) 

Resource Guide—Plan Participants—General 

Distribution Rules’’ website, at https://www.irs.gov/ 

retirement-plans/plan-participant-employee/401kresource-guide-plan-participants-generaldistribution-rules#tax-on-early-distributions. 

137 ($4,646,579,157 * 12%) + ($4,646,579,157 * 

50% * 10%) = $789,918,457. Using a 3 percent 

discount rate, this results in transfers totaling 

$655,539,147. Using a 7 percent discount rate, this 

results in transfers totaling $519,964,549. 

138Using a 3 percent discount rate, this results in 

total benefits of $1,451,914,016. Using a 7 percent 

discount rate, this results in total benefits of 

$1,184,887,753. 139Using a 3 percent discount rate, this results in 

total benefits of $2,341,907,159. Using a 7 percent 

discount rate, this results in total benefits of 

$1,911,200,700. 140Using a 3 percent discount rate, this results in 

total costs of $11,259,790. Using a 7 percent 

discount rate, this results in total costs of 

$9,869,114. 141Using a 3 percent discount rate, this results in 

total costs of $14,160,023. Using a 7 percent 

discount rate, this results in total costs of 

$12,073,029. 

in the calendar year in which they take 

the distribution, or they are disabled, or 

they have certain medical expenses.136

The Department estimates that the 

amount of the transfer from the 

government to participants would be 

about $790 million.137

8. Regulatory Alternatives 

Section 6(a)(3)(C)(iii) of Executive 

Order 12866 requires a significant 

regulation, and encourages other 

regulations, to include an assessment of 

the costs and benefits of potentially 

effective and reasonable alternatives to 

the planned regulation. The Department 

considered several alternative 

approaches in developing this proposed 

regulation which are discussed below. 

8.1. Do Not Issue Regulations—Rely 

Only on Sub-Regulatory Guidance 

The Department considered not 

proposing regulations with respect to 

the automatic portability provision 

included in section 120 of the SECURE 

2.0 Act. Section 120(c) directs the 

Secretary of Labor to ‘‘issue such 

guidance as may be necessary to carry 

out the purposes of the amendments 

made by this section, including 

regulations or other guidance’’ no later 

than 12 months after the enactment of 

the statute. To this end, the Department 

has considered whether its 

responsibilities under section 120(c) 

could be satisfied by issuing only subregulatory guidance. The Department 

considered issuing guidance stating that 

compliance with the individual 

exemption would be sufficient to 

comply with the statutory exemption. 

However, since the Department 

anticipates that entities not engaging in 

automatic portability transactions may 

wish to enter the automatic portability 

market in the future, the Department 

maintains that issuing the proposed 

regulation would address any 

uncertainty on complying with the 

statutory exemption in a manner that is 

consistent with directives expressed in 

section 120(c). 

8.2. Issue More Limited Regulations 

The Department considered issuing 

limited regulations concerning only the 

portions of section 4975(f)(12) focused 

on the audit and the acknowledgement 

of fiduciary status, both of which called 

on the Department to promulgate 

regulations to determine compliance. In 

so doing, the Department could have 

issued sub-regulatory guidance with 

respect to compliance with the rest of 

the exemption. The Department did 

ensure that these proposed regulations 

provide the necessary blueprint for 

completing a comprehensive audit and 

sufficient acknowledgement of fiduciary 

status. However, given that regulations 

were to be proposed, the Department 

believes that more comprehensive 

regulations ensure that automatic 

portability transactions are protective of 

plan participants and beneficiaries. 

Furthermore, the Department believes 

that the novel nature of automatic 

portability transactions necessitates 

comprehensive proposed regulations 

followed by a notice-and-comment 

process in which stakeholders can 

provide input. 

8.3. Do Not Require an Initial 

Enrollment Notice 

The Department considered not 

including a requirement for an initial 

enrollment notice in the proposed 

regulations. The statute only requires 

that an automatic portability provider 

furnish IRA owners with a pretransaction notice and a post-transaction 

notice. However, section 120(c)(1) gives 

the Department the statutory authority 

to require that automatic portability 

providers furnish a notice ‘‘in advance 

of’’ the pre-transaction notice. The 

Department was not mandated to 

require additional notices and could 

have considered the pre-transaction 

notice sufficient to provide IRA owners 

with information regarding the 

automatic portability transactions. 

However, the Department determined 

that the initial enrollment notice helps 

to ensure the IRA owner’s awareness 

and understanding of the automatic 

portability transaction, including but 

not limited to, the individual’s right to 

affirmatively elect not to participate in 

the transaction, the other available 

distribution options, the procedures to 

take advantage of such options, and the 

procedures for doing so. 

8.4. Audit Does Not Have To Be 

‘‘Independent’’ 

The Department considered proposing 

an audit that could be conducted as an 

internal audit. However, the Department 

determined that the factors which led to 

the inclusion of an independent audit in 

PTE 2019–02 still exist with respect to 

the execution of automatic portability 

transactions, even under the new 

statutory exemption. The novelty of 

these types of transactions leads the 

Department to believe that the enhanced 

oversight and credibility associated with 

an independent audit favors the 

Department’s approach in the proposed 

regulation. 

8.5. Exemptive Relief for Default IRAs 

Involving Rollovers of Accounts With a 

Value of $1,000 or Less 

In section E of the preamble the 

Department is requesting comments on 

whether it should exercise its general 

exemption authority under ERISA 

section 408(a) to provide the same 

exemptive relief to mandatory 

distributions with a value of $1,000 or 

less that the statutory exemption 

provides to mandatory distributions 

described in Code section 401(a)(31)(B) 

with a value between $1,001 and 

$7,000. The estimated benefits and costs 

in the regulatory impact analysis for this 

proposed rule include all accounts with 

balances of $7,000 or less. As discussed 

in section E, that analysis aligns with 

the scope of Department’s safe harbor 

regulation at 29 CFR 2550.404a–2 for 

automatic rollovers to individual 

retirement plans and with PTE 2019–02. 

Excluding accounts with balances of 

$1,000 or less from the regulatory 

impact analysis for the proposed rule 

results in a reduction in the ten-year 

undiscounted total estimated benefit to 

$1.7 billion 138 (compared to $2.8 billion 

in the main analysis),139 reduction in 

incremental costs to $12.6 million 140

(compared to $16.2 million in the main 

analysis),141 and an increase of 2.3 

million automatic portability 

transactions (compared to an increase of 

3.7 million in the main analysis). This 

results in lower net benefits, but those 

net benefits are still substantial. 

The Department has substantial 

uncertainty surrounding these estimates 

and made simplifying assumptions to 

obtain the estimates. The Department 

seeks comment and data on the 

following issues. The number of 

mandatory distributions or accounts 

with a balance of $1,000 or less is not 

certain. The most relevant data available 

comes from a 2023 Public Retirement 

Research Lab report concerning public 


ddrumheller on DSK120RN23PROD with PROPOSALS2
5658 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

142Public Retirement Research Lab, Secure 2.0 

Act Low-Balance Distribution Limit Changes: A 

Look by Age and Tenure, (2023), SECURE 2.0 Act 

Low-Balance Distribution Limit Changes: A Look by 

Age and Tenure (ebri.org). 

143Using a 3 percent discount rate, this results in 

total benefits of $529,400,846. Using a 7 percent 

discount rate, this results in total benefits of 

$439,280,667. 

144Using a 3 percent discount rate, this results in 

total benefits of $2,341,907,159. Using a 7 percent 

discount rate, this results in total benefits of 

$1,911,200,700. 

145Using a 3 percent discount rate, this results in 

total costs of $8,265,330. Using a 7 percent discount 

rate, this results in total costs of $7,488,188. 

146Using a 3 percent discount rate, this results in 

total costs of $14,160,023. Using a 7 percent 

discount rate, this results in total costs of 

$12,073,029. 

147U.S. Bureau of Labor Statistics, National 

Compensation Survey, (March, 2023). 

defined contribution plans which 

indicated that 16 percent of all account 

balances were $1,000 or less. The report 

also found that 42 percent of all 

accounts had balances less than 

$7,000.142 The primary analysis 

assumes that all accounts below the 

distribution threshold are treated the 

same and the account owners respond 

similarly regardless of the account 

balance. The Department seeks data on 

whether mandatory distributions with 

$1,000 or less are treated differently by 

plan sponsors and how the account 

owners’ responses may differ. 

9. Uncertainty 

The Department acknowledges that 

there is significant uncertainty in how 

the automatic portability provider 

market will develop in the future. The 

Department requests comments on these 

sources of uncertainty. For instance, 

there may be only one automatic 

portability provider in the future, PSN, 

or there may be multiple automatic 

portability providers, which would 

allow for specialization on the part of 

the automatic portability providers. If 

additional firms ultimately enter the 

market as automatic portability 

providers, resulting in a less 

concentrated market with more 

competitors, that would likely lead to 

lower fees, better quality service, and 

less profits for RCH/PSN. These benefits 

and transfers would accrue to the other 

automatic portability providers and to 

participants. 

In the baseline scenario, the number 

of recordkeepers joining PSN was 

expected to be flat. However, additional 

recordkeepers could join the network. 

The model was adjusted to have the 

number of recordkeepers increase at half 

the rate as was used for the post-statute 

and regulation scenario. Changing this 

assumption led to a ten-year 

undiscounted total estimated benefit of 

$615.0 million 143 (compared to $2.8 

billion in the main analysis),144 $9 

million in incremental costs 145

(compared to $16.2 million in the main 

analysis),146 and an increase of 1.3 

million automatic portability 

transactions (compared to an increase of 

3.7 million in the main analysis). 

Changing this assumption results in 

lower net benefits, but those net benefits 

are still substantial. 

There is uncertainty about the number 

of future automatic portability 

transactions, in large part because the 

Department is unclear how the 

proposed rule will impact DB plans and 

participants. While the Department 

believes that the statutory regulation 

applies to both DB and DC plan 

participants, the Department assumes 

that DB plan participants will rarely be 

affected by this proposed rule. DB plan 

benefits are generally derived from a 

formula based on an employee’s wages 

and years of service, which an employee 

is only entitled to once they are fully 

vested. Vesting periods vary, however, 

with five-year ‘‘cliff’’ vesting being very 

common and for which few vested 

participants would separate from 

service with benefits that are less than 

$7,000. However, participants in DB 

plans with graded vesting would be 

more likely to have accrued benefits 

below the threshold. The Department 

requests comments on the number of DB 

plans and participants that would be 

affected by this statutory exemption and 

how they would be impacted. 

While the share of workers covered by 

DB plans has continued to decline, 

those covered by DC plans have 

increased substantially, with 45 percent 

of civilian workers participating in DC 

plans compared to just 19 percent 

participating in DB plans.147 If DC plan 

coverage continues to increase in the 

future, the amount of automatic 

portability transactions will likely also 

increase. 

Workers affected on the margin by 

increased retirement plan coverage 

would likely have a lower income on 

average than workers currently covered 

by a retirement plan and therefore 

would tend to contribute less to their 

plan. Employers sponsoring new plans 

may also contribute less. These factors 

would lead to more small balance 

accounts that would be subject to forced 

transfers into Default IRAs. These 

workers would also be more likely to 

experience a larger number of job 

turnovers on average, so there would be 

more Default IRA owners. Under the 

assumption that DC plan coverage will 

increase in the future, Default IRA 

owners would be more likely to have 

coverage at their new jobs, leading to 

more automatic portability transactions. 

There are also many factors at the 

level of individual employee behavior 

that will affect the impact of the 

statutory exemption and any 

accompanying regulations. This 

includes employee decisions about 

whether to contribute to their DC plan, 

which will be influenced by plan 

designs that have automatic enrollment. 

Furthermore, employee decisions about 

how to handle their account when 

separating from a job will be key. It is 

difficult to know what the trends will be 

around such decisions in the future 

since they may be affected by financial 

advice, and any possible changes to the 

scope of coverage under DB pension 

plans and Social Security. While the 

scale of such developments is difficult 

to predict, they will surely have a 

substantial impact on the scope of 

automatic portability transactions, the 

number of participants, plans, and 

financial institutions affected, as well as 

the size of the benefits and costs. 

G. Paperwork Reduction Act 

As part of its continuing effort to 

reduce paperwork and respondent 

burden, the Department conducts a 

preclearance consultation program to 

allow the general public and Federal 

agencies to comment on proposed and 

continuing collections of information in 

accordance with the Paperwork 

Reduction Act of 1995 (PRA). This helps 

ensure that the public understands the 

Department’s collection instructions, 

respondents can provide the requested 

data in the desired format, reporting 

burden (time and financial resources) is 

minimized, collection instruments are 

clearly understood, and the Department 

can properly assess the impact of 

collection requirements on respondents. 

The Department is soliciting 

comments regarding the information 

collection request (ICR) included in the 

NPRM. To obtain a copy of the ICR, 

contact the PRA addressee below or go 

to RegInfo.gov. The Department has 

submitted a copy of the rule to the 

Office of Management and Budget 

(OMB) in accordance with 44 U.S.C. 

3507(d) for review of its information 

collections. The Department and OMB 

are particularly interested in comments 

that: 

• Evaluate whether the collection of 

information is necessary for the 

functions of the agency, including 

whether the information will have 

practical utility; 

• Evaluate the accuracy of the 

agency’s estimate of the burden of the 

collection of information, including the 


ddrumheller on DSK120RN23PROD with PROPOSALS2
Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 5659 

148 67 FR 17264, 85 FR 31884. 

149The Department estimates 96.1 percent of 

retirement investors receive disclosures 

electronically. This is the sum of the estimated 

share of retirement investors receiving electronic 

disclosures under the 2002 electronic disclosure 

safe harbor (58.3 percent) and the estimated share 

of retirement investors receiving electronic 

disclosures under the 2020 electronic disclosure 

safe harbor (37.8 percent). 

150United States Postal Service. ‘‘First-Class 

Mail.’’ (2023). https://www.usps.com/ship/firstclass-mail.htm. 151 Internal DOL calculation based on 2023 labor 

cost data. For a description of the Department’s 

methodology for calculating wage rates, see https:// 

www.dol.gov/sites/dolgov/files/EBSA/laws-andregulations/rules-and-regulations/technicalappendices/labor-cost-inputs-used-in-ebsa-opr-riaand-pra-burden-calculations-june-2019.pdf. 

152Portability Services Network, An Industry Led 

Utility, (2023), https://psn1.com/. 

153The hour burden is estimated as: 1 automatic 

portability provider × 1 hour = 1 hour. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 1 hour × $159.34 = $159.34, 

rounded to $159. 

154As of 2023, PSN estimated that their members 

represented 185,000 employer-sponsored retirement 

plans. (Portability Services Network, A Retirement 

Industry-Led Utility, (2023), https://psn1.com/ 

learning-center/about-psn/a-retirement-industryled-utility.) 

validity of the methodology and 

assumptions used; 

• Enhance the quality, utility, and 

clarity of the information to be 

collected; and 

• Minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology 

(e.g., permitting electronically delivered 

responses). 

Commenters may send their views on 

the Department’s PRA analysis in the 

same way they send comments in 

response to the proposed rule as a 

whole (for example, through the 

www.regulations.gov website), including 

as part of a comment responding to the 

broader proposed rule. Comments are 

due by March 29, 2024 to ensure their 

consideration. 

ICRs are available at RegInfo.gov 

(reginfo.gov/public/do/PRAMain). 

Requests for copies of the ICR can be 

sent to the PRA addressee: 

By mail: James Butikofer, Office of 

Research and Analysis, Employee 

Benefits Security Administration, U.S. 

Department of Labor, 200 Constitution 

Avenue NW, Room N–5718, 

Washington, DC 20210 

By email: ebsa.opr@dol.gov 

1. Preliminary Assumptions and Cost 

Estimate Inputs 

For the purposes of this analysis, the 

Department assumes that the percent of 

retirement investors receiving electronic 

disclosures would be similar to the 

percent of plan participants receiving 

electronic disclosures under the 

Department’s 2002 and 2020 electronic 

disclosure safe harbors.148 Accordingly, 

the Department estimates that 96.1 

percent of the disclosures sent to 

retirement investors would be sent 

electronically, and the remaining 3.9 

percent would be sent by mail.149 For 

disclosures sent by mail, the 

Department estimates that entities will 

incur a cost of $0.66 150 for postage and 

$0.05 per page for material and printing 

costs. 

Additionally, the Department assumes 

that several types of personnel would 

perform the tasks associated with 

information collection requests at an 

hourly wage rate of $63.45 for clerical 

personnel, $128.11 for a Senior 

Executive, $134.93 for a plan fiduciary, 

$155.61 for a web developer, and 

$159.34 for a legal professional.151

2. Summary of Affected Entities 

As discussed in the Affected Entities 

section of the Regulatory Impact 

Analysis, the Department expects that 

the statutory exemption and 

accompanying proposed regulation 

would impose paperwork burdens on 

automatic portability providers and 

plans. For the purposes of this analysis, 

the Department assumes that there will 

only be one entity providing automatic 

portability provider services. The 

Department acknowledges that there is 

significant uncertainty in how the 

automatic portability provider market 

will develop in the future. For a larger 

discussion on the factors the 

Department considered in this estimate, 

refer to the Affected Entities section of 

the Regulatory Impact Analysis. 

In 2023, PSN noted that their member 

recordkeepers represent over 185,000 

employer-sponsored retirement 

plans.152 PSN does not clarify what type 

of plans are included in this estimate or 

whether all of these plans are eligible 

for automatic portability services. The 

Department relies on this estimate for 

purposes of this analysis with the 

acknowledgement of this uncertainty. 

The Department requests comment on 

how many plans are expected be eligible 

for automatic portability services in the 

near future, as well as what percentage 

of plans might be eligible in the future. 

As discussed in the Affected Entities 

section of the Regulatory Impact 

Analysis, the Department estimates that 

there are 954,786 account holders for 

whom default IRAs will be established 

in the first year, 976,384 in year two and 

994,897 in year three. The Department 

requests comment on this estimate, as 

well as how it would likely change after 

the exemption becomes effective. The 

table below summarizes the 

Department’s estimate for the accounts 

eligible for automatic portability 

transactions, the number of accounts 

that would opt out of automatic 

portability transactions, and the number 

of executed automatic portability 

transactions. For more information on 

how these estimates were calculated, 

refer to the Affected Entities section of 

the Regulatory Impact Analysis. 

TABLE 11—AFFECTED PARTICIPANTS/ACCOUNTS

Year 1 Year 2 Year 3 

Participants (Total) ............................................................................................................................................... 954,786 976,384 994,897 

Accounts Located and Matched for Automatic Portability ........................................................................... 403,397 526,984 639,538 

Accounts Opting Out of Automatic Portability .............................................................................................. 5,648 8,953 8,953 

Automatic Portability Transactions ............................................................................................................... 397,749 519,606 630,585 

3. Acknowledgement of Fiduciary Status 

The proposed regulation requires the 

automatic portability provider to 

acknowledge in writing that it is a 

fiduciary upon being engaged by a plan 

fiduciary. The Department anticipates 

that a single standard acknowledgement 

would be included in contracts with 

plan sponsors. The Department 

estimates that it would take a legal 

professional one hour to draft this 

acknowledgement in the first year, 

resulting in an hour burden of one hour 

with an equivalent cost of $159.153

Additionally, the Department 

estimates that 185,000 

acknowledgements of fiduciary 

status 154 would be sent to plan 


ddrumheller on DSK120RN23PROD with PROPOSALS2
5660 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

155The hour burden is estimated as: 185,000 plan 

fiduciaries × 2/60 hours = 6,167 hours. The 

equivalent cost is estimated as: 185,000 plan 

fiduciaries × 2/60 hours × $63.45 = $391,275. 

156The hour burden is estimated as: 1 automatic 

portability provider × 10 hours = 10 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 10 hours × $159.34 = 

$1,593.40, rounded to $1,593. 

157The hour burden is estimated as: 185,000 

plans × 2/60 hours = 6,167 hours. The equivalent 

cost is estimated as: 185,000 plans × 2/60 hours × 

$63.45 = $391,275. 

158The hour burden is estimated as: 1 automatic 

portability provider × 10 hours = 10 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 10 hours × $159.34 = 

$1,593.40, rounded to $1,593. 

159The hour burden is estimated as: 1 automatic 

portability provider × 2 hours = 2 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 2 hours × $159.34 = $318.68, 

rounded to $319. 

160The hour burden is estimated as: 1 automatic 

portability provider × 5 hours = 5 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 5 hours × $63.45 = $317.25, 

rounded to $317. 

161The hour burden is estimated as: 1 automatic 

portability provider × 3 hours = 3 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 3 hours × $159.34 = $478.02, 

rounded to $478. 

162The hour burden is estimated as: 1 automatic 

portability provider × 30/60 hours = 30/60 hours. 

The equivalent cost is estimated as: 1 automatic 

portability provider × 30/60 hours × $128.11 = 

$64.06, rounded to $64. 

163The hour burden is estimated as: 1 automatic 

portability provider × 15/60 hours = 15/60 hours. 

The equivalent cost is estimated as: 1 automatic 

portability provider × 15/60 hours × $63.45 = 

$15.86, rounded to $16. 

164The hour burden is estimated as: 1 automatic 

portability provider × 1 hour = 1 hour. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 1 hour × $159.34 = $159.34, 

rounded to $159. 

165The hour burden is estimated as: 185,000 

plans × 15/60 hour = 46,250 hours. The equivalent 

cost is estimated as: 185,000 plans × 15/60 hour × 

$134.93 = $6,240,512.50, rounded to $6,240,513. 

fiduciaries in the first year and that it 

would take a clerical professional two 

minutes to prepare and send the 

acknowledgement. This results in an 

hour burden of 6,167 hours with an 

equivalent cost of $391,275.155 The 

Department expects that 

acknowledgements sent in subsequent 

years would be included in contract 

documents and would result in a de 

minimis burden. 

The Department assumes that the 

acknowledgement of fiduciary status 

generally would be sent electronically. 

Therefore, the Department assumes 

there would be no associated material or 

postage cost. 

4. Summary Plan Description 

The proposal would require the 

automatic portability provider to 

provide the administrator of 

participating plans with a model 

description of the automatic portability 

program for plan sponsors to include in 

their summary plan description (SPD), 

including fees and expenses, as 

applicable. The Department anticipates 

that the automatic portability provider 

would draft and send the same standard 

model description to all plans. The 

Department estimates that drafting the 

SPD would take a legal professional 10 

hours, resulting in an hour burden of 10 

hours with an equivalent cost of $1,593 

in the first year.156 The Department 

estimates that it would take a clerical 

professional two minutes to prepare and 

send the summary plan description to 

each of the 185,000 plans, resulting in 

an annual hour burden of 6,167 hours 

and an equivalent cost of $391,275.157

The Department assumes that this 

document would be sent electronically 

and thus would not incur any postage 

or material costs. 

5. Policies and Procedures 

The proposal requires automatic 

portability providers to establish, 

maintain, and follow written policies 

and procedures to ensure that they 

obtain or have access to current and 

accurate census and contact data on 

individual participants and IRA owners 

and to specify standards and timeframes 

that apply to all automatic portability 

transactions. The proposal also includes 

the ability for the automatic portability 

provider to establish policies and 

procedures in connection with the 

limitation on the exercise of discretion. 

An automatic portability provider will 

be deemed to satisfy the limited 

discretion requirement if it establishes, 

maintains, and follows policies and 

procedures regarding the process for 

executing automatic portability 

transactions. 

The Department estimates that it 

would take a legal professional 

approximately 10 hours to establish, or 

modify as applicable, policies and 

procedures satisfying the requirements 

in the first year, resulting in an hour 

burden of 10 hours in the first year with 

an equivalent cost of $1,593.158 In 

subsequent years, the Department 

estimates that it would take a legal 

professional two hours for the automatic 

portability provider to modify the 

policies and procedures as needed, 

resulting in an hour burden of two 

hours with an equivalent cost of 

$319.159

6. Audit 

The proposal requires automatic 

portability providers to retain an 

independent auditor to conduct an 

annual audit to demonstrate compliance 

and identify any noncompliance issues. 

The auditor shall, at a minimum, 

review: the policies and procedures, a 

representative sample of the required 

disclosures, a representative sample of 

automatic portability transactions, and 

the requirements of section 4975(d)(25), 

4975(f)(12), and these regulations. The 

auditor shall prepare a written audit 

report signed by the auditor. 

The Department estimates that it 

would take a clerical professional five 

hours to collect and provide records to 

the independent auditor, resulting in an 

annual hour burden of five hours with 

an equivalent cost of $317.160 While the 

Department lacks precise information 

on how much it would cost an 

automatic portability provider to hire an 

independent auditor to satisfy the 

required conditions, the Department 

estimates that it would cost $30,000. 

This estimate is based on information 

previously provided by stakeholders for 

similar audits, and the Department 

requests comment on this figure. 

The Department estimates that it will 

take a legal professional three hours to 

draft the certification in the first year, 

resulting in an hour burden of three 

hours and equivalent cost of $478.161

The Department estimates that it would 

take a senior executive 30 minutes to 

execute the certification, resulting in an 

annual hour burden of 30 minutes with 

an equivalent cost of $64.162 Finally, the 

Department approximates that it would 

take a clerical professional 15 minutes 

to send the report to the Department 

once finalized, resulting in an hour 

burden of 15 minutes and an equivalent 

cost of $16.163

The proposal requires that the written 

audit include certain information, 

described in the regulatory text. If the 

automatic portability provider does not 

have direct access to this information, 

the proposal would require the 

partnering recordkeepers and 

participating plans to provide such 

information as a condition of receiving 

the automatic portability provider’s 

services. This obligation may require an 

automatic portability provider to update 

requirements with its recordkeepers and 

plans. The Department estimates that 

updating the standardized contracts 

would take a legal professional at the 

automatic portability provider one hour, 

resulting in an hour burden of one hour 

and an equivalent cost of $159.164

Additionally, the Department estimates 

that it would take 15 minutes for plan 

fiduciaries to execute the updated 

contract, resulting in an hour burden of 

46,250 hours with an equivalent cost of 

$6,240,513.165


ddrumheller on DSK120RN23PROD with PROPOSALS2
Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 5661 

166The hour burden is estimated as: 1 automatic 

portability provider × 20 hours = 20 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 20 hours × $159.34 = 

$3.186.80, rounded to $3,187. 

167The hour burden is estimated as: 1 automatic 

portability provider × 2 hours = 2 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 2 hours × $63.46 = $126.90, 

rounded to $127. 

168The hour burden is estimated as: 1 automatic 

portability provider × 2 hours = 2 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 2 hours × $159.34 = $318.68, 

rounded to $319. 

169The hour burden is estimated as: 185,000 

plans × 2/60 hours = 6,167 hours. The equivalent 

cost is estimated as: 185,000 plans × 2/60 hours × 

$63.45 = $391,275. 

170The hour burden is estimated as: 1 automatic 

portability provider × 2 hours = 2 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 2 hours × $159.34 = $318.68, 

rounded to $319. 

171The detailed annual hour burden is estimated 

as: 

Year 1: 954,786 individuals × 2/60 hours = 31,826 

hours. The equivalent cost is estimated as: 31,826 

hours × $63.45 = $2,019,372. 

Year 2: 976,384 individuals × 2/60 hours = 32,546 

hours. The equivalent cost is estimated as: 32,546 

hours × $63.45 = $2,065,052. 

Year 3: 994,897 individuals × 2/60 hours = 33,163 

hours. The equivalent cost is estimated as: 33,163 

hours × $63.45 = $2,104,207. 

172The detailed cost is estimated as: [(((954,786 

year 1) + (976,384 year 2) + (994,897 year 3)) = 

2,926,067 × 3.9% = 114,117 × (5 pages × $0.05+ 

$0.66 postage) = $103,846 total for the three years. 

$103,846.47/3 = $34,615 period average. 

7. Corrections 

If the auditor determines the 

automatic portability provider was not 

in compliance with the statute and 

related regulations, the proposal 

includes an opportunity for selfcorrection. 

As such, the proposal would require 

the automatic portability provider to 

establish policies for the corrections 

permitted by the proposal. The 

Department assumes that establishing 

such policies and procedures would 

take a legal professional 20 hours in the 

first year, resulting in an hour burden of 

20 hours and an equivalent cost of 

$3,187.166

In the case of a violation, the 

automatic portability provider would be 

required to correct the violation and 

document the correction in writing 

within 30 calendar days of correction. 

The Department does not expect that an 

automatic portability provider would 

have a violation on an annual basis, and 

the Department acknowledges that the 

correction and related documentation 

could vary significantly, depending on 

the nature of the violation. For the 

purposes of this analysis, the 

Department considers the cost on an 

average annual basis. The Department 

estimates that, on average, it would take 

a clerical professional two hours to draft 

and send the documentation of the 

correction, resulting in an average 

annual hour burden of two hours and an 

equivalent cost of $127.167

8. Notices and Disclosures 

8.1. Notice to the Secretary of Labor 

Under the proposed regulation, 

within 90 calendar days of the date that 

the automatic portability provider 

begins operating an automatic 

portability transaction program that is 

intended to rely on prohibited 

transaction relief, the automatic 

portability provider must notify the 

Secretary. Because PTE 2019–02 was 

issued to a single entity, there was no 

such requirement in the exemption. 

However, the Department believes based 

on the small number of expected 

automatic portability providers entering 

the market, that the possible cost burden 

associated with submitting the simple 

notice via email to the Department to be 

roughly $16, which is estimated as 15 

minutes of a clerical worker’s time with 

an hourly wage rate of $63.45. This 

notification needs to be updated to 

report a change to the legal or operating 

name(s) of the automatic portability 

provider that is relying upon the 

exemption. The Department expects that 

such a change would be rare and thus 

does not estimate an associated cost. 

8.2. Fee and Compensation Disclosure 

Requirement 

The proposed regulation requires the 

automatic portability provider to 

disclose fees and compensation to a 

fiduciary of the employer-sponsored 

plan and receive an approval in writing 

in advance of the transaction. This 

includes fees and compensation 

received, directly or indirectly, by the 

automatic portability provider 

(including its affiliates) for services 

provided in connection with the 

automatic portability transaction. The 

Department assumes that the disclosure 

would be standard across transactions, 

requiring an update no more frequently 

than once a year. The Department 

requests comment on this assumption. 

The Department estimates that 

preparing the disclosures of fees and 

compensation would take a legal 

professional two hours in the first year 

to draft the disclosure. This results in a 

burden of two hours and an equivalent 

cost of $319 in the first year.168 The 

Department estimates that it would take 

a clerical professional two minutes to 

prepare and send the disclosure to the 

fiduciary of the estimated 185,000 

plans, resulting in a burden of 6,167 

hours in the first year and an equivalent 

cost of $391,275.169

The Department assumes that the 

disclosure and approval would be sent 

electronically between the automatic 

portability provider and the plan. 

Therefore, the Department assumes 

there would be no associated material or 

postage cost. 

8.3. Initial Enrollment Notice 

The proposal requires an automatic 

portability provider to send each 

individual on whose behalf the 

individual retirement plan was 

established an initial notice within 15 

calendar days of the individual 

retirement plan’s enrollment or 

participation in an arrangement that 

includes the possibility of a future 

automatic portability transaction 

executed by the automatic portability 

provider. The Department estimates that 

preparing this disclosure would take a 

legal professional two hours, resulting 

in an hour burden of two hours and an 

equivalent cost of $319.170

As discussed above, the Department 

estimates that the disclosures would be 

sent to an average of 975,35 individuals 

in the first three years, and that it would 

take a clerical professional two minutes 

to prepare and send the disclosures. 

This results in an average hour burden 

of 32,512 hours with an average 

equivalent cost of roughly $2 million 

per year.171 The Department estimates 

that an automatic portability provider 

would incur $0.66 for postage and $0.25 

for the paper and printing costs of five 

pages, which the Department estimates 

to cost on average $34,615 per year in 

the first three years.172

8.4. Pre-Transaction Notice 

639,538 in the third year. The 

Department estimates that drafting this 

notice would take a legal professional 

two hours in the first year and that 

preparing and sending each disclosure 

would take a clerical professional two 

minutes. 

As discussed at the beginning of this 

section, the Department estimates that 

3.9 percent of the notices would be sent 

by mail. The Department estimates that 

an automatic portability provider would 

incur a cost of $0.76 to send each 

disclosure, including $0.66 for postage 

and $0.10 for the paper and printing 

costs of two pages. The hour burden, 

equivalent cost, postage, and material 

costs are summarized in the table below. 


ddrumheller on DSK120RN23PROD with PROPOSALS2
5662 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

TABLE 12—BURDEN AND COST TO DRAFT NOTICE

[Automatic portability provider] 

Year 1 Year 2 Year 3 

Affected Entities ....................................................................................................................... 1 .......................... ..........................

× Annual Hour Burden per Entity (Hours) ............................................................................... 2 .......................... ..........................

= Total Hours ........................................................................................................................... 2 .......................... ..........................

× Labor Cost (Legal Professional) ........................................................................................... $159.34 .......................... ..........................

= Equivalent Cost .................................................................................................................... $318.68 .......................... ..........................

Note: Components may not sum to parts due to rounding. 

TABLE 13—BURDEN AND COST TO PREPARE AND SEND NOTICE

[Automatic portability provider] 

Year 1 Year 2 Year 3 

Number of Notices ................................................................................................................... 403,397 526,984 639,538 

× Annual Hour Burden per Transaction (Hours) ..................................................................... 2/60 2/60 2/60 

= Total Hours ........................................................................................................................... 13,447 17,566 21,318 

× Labor Cost (Clerical Professional) ....................................................................................... $63.45 $63.45 $63.45 

= Equivalent Cost .................................................................................................................... $853,184.66 $1,114,570.24 $1,352,623.70 

Note: Components may not sum to parts due to rounding. 

TABLE 14—MATERIAL AND POSTAGE COST

[Automatic portability provider] 

Year 1 Year 2 Year 3 

Number of Notices ................................................................................................................... 403,397 526,984 639,538 

× Percent of Notices Sent by Mail ........................................................................................... 3.9% 3.9% 3.9% 

= Number of Notices Sent by Mail .......................................................................................... 15,732 20,552 24,942 

× Postage and Material Cost per Notice ................................................................................. $0.76 $0.76 $0.76 

= Material and Postage Cost ................................................................................................... $11,956.32 $15,619.52 $18,955.92 

Note: Components may not sum to parts due to rounding. 

8.5. Post-Transaction Notice 

The proposal requires an automatic 

portability provider, not later than three 

business days after an automatic 

portability transaction is completed, to 

provide notice to the individual on 

whose behalf the individual retirement 

plan was established. As discussed 

above, the Department estimates that 

397,749 automatic portability 

transactions would occur in first year, 

519,606 in the second year, and 630,585 

in the third year. The Department 

estimates that drafting this notice would 

take a legal professional two hours in 

the first year and that preparing and 

sending each disclosure would take a 

clerical professional two minutes. 

As discussed at the beginning of this 

section, the Department estimates that 

3.9 percent of the notices would be sent 

by mail. The Department estimates that 

an automatic portability provider would 

incur a cost of $0.76 to send each 

disclosure, including $0.66 for postage 

and $0.10 for the paper and printing 

costs of two pages. The hour burden, 

equivalent cost, postage, and material 

costs are summarized in the table below. 

TABLE 15—BURDEN TO DRAFT NOTICE

[Automatic portability provider] 

Year 1 Year 2 Year 3 

Affected Entities ....................................................................................................................... 1 .......................... ..........................

× Annual Hour Burden per Entity (Hours) ............................................................................... 2 .......................... ..........................

= Total Hours ........................................................................................................................... 2 .......................... ..........................

× Labor Cost (Legal Professional) ........................................................................................... $159.34 .......................... ..........................

= Equivalent Cost .................................................................................................................... $318.68 .......................... ..........................

Note: Components may not sum to parts due to rounding. 

TABLE 16—BURDEN TO PREPARE AND SEND NOTICE

[Automatic portability provider] 

Year 1 Year 2 Year 3 

Number of Notices ................................................................................................................... 397,749 519,606 630,585 

× Annual Hour Burden per Transaction (Hours) ..................................................................... 2/60 2/60 2/60 

= Total Hours ........................................................................................................................... 13,258 17,320 21,020 

× Labor Cost (Clerical Professional) ....................................................................................... $63.45 $63.45 $63.45 


ddrumheller on DSK120RN23PROD with PROPOSALS2
Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 5663 

173The relevant ACS data set used is the U.S. 

Census, 2016–2020 American Community Survey 5- 

Year Estimates, Table B16001, Language Spoken at 

Home by Ability to Speak English for the 

Population 5 Years and Over, available at https:// 

data.census.gov/cedsci/table?tid=ACSDT5

Y2020.B16001. 

174American Translators Association, How Much 

Does a Translation Cost? (May 2023), https://

www.atanet.org/client-assistance/how-much-doestranslation-cost/. 175Lettier, Mariel, Translation Rates in 2023—A 

Complete Guide, Rush Translate, (2023), https://

rushtranslate.com/blog/translation-rates#:∼:text=

for%201000%20words.-,What%20

is%20the%20average%20rate

%20for%20translation%20

per%20page%3F,certified

%20translation%20and%20charges%20%2424.95. 

176 81 FR 92316. 

TABLE 16—BURDEN TO PREPARE AND SEND NOTICE—Continued 

[Automatic portability provider] 

Year 1 Year 2 Year 3 

= Equivalent Cost .................................................................................................................... $841,239.14 $1,098,966.69 $1,333,687.28 

Note: Components may not sum to parts due to rounding. 

TABLE 17—MATERIAL AND POSTAGE COST

[Automatic portability provider] 

Year 1 Year 2 Year 3 

Number of Notices ................................................................................................................... 397,749 519,606 630,585 

× Percent of Notices Sent by Mail ........................................................................................... 3.9% 3.9% 3.9% 

= Number of Notices Sent by Mail .......................................................................................... 15,512 20,265 24,593 

× Postage and Material Cost per Notice ................................................................................. $0.76 $0.76 $0.76 

= Equivalent Cost .................................................................................................................... $11,789.12 $15,401.40 $18,690.68 

Note: Components may not sum to parts due to rounding. 

8.6. Culturally and Linguistically 

Appropriate Notices 

The proposed regulation would 

require that notices and disclosures to 

participants and IRA owners be 

provided in a culturally and 

linguistically appropriate manner if the 

address of a recipient is in a county 

where 10 percent or more of the 

population is literate only in the same 

non-English language. In these counties, 

the automatic portability provider must 

include in the English versions of all 

required notices and disclosure, a 

statement prominently displayed in any 

applicable non-English language clearly 

indicating how to access the language 

services provided by the automatic 

portability provider. The Department 

estimates that satisfying this 

requirement would result in a de 

minimis cost. 

Additionally, the automatic 

portability provider would be required 

to provide, upon request, a notice or 

disclosure in any applicable nonEnglish language. In the 2016–2020 ACS 

data, 230 counties or county equivalents 

met or exceeded the 10 percent 

threshold (rounded to the nearest 

percent).173 In the 2016–2020 ACS, the 

Department identified eight languages 

that met the 10 percent threshold in at 

least one county. The eight languages 

were Spanish, Chinese, Navajo, Tagalog, 

Samoan, Carolinian, and Chamorro. For 

the purposes of this analysis, the 

Department estimates that an automatic 

portability provider will need to 

translate the notices into eight 

languages. Document translation costs 

vary depending on the length of the 

document, the complexity of the 

document, and the complexity of the 

language.174 One source, estimates that 

the average translation cost per page 

ranges between $20 and $130.175 The 

Department assumes that, on average, it 

will cost $100 per page to translate the 

notices in this proposal. The translation 

costs for the initial enrollment notice, 

pre-transaction notice, and the posttransaction notice are summarized in 

the table below. 

TABLE 18—TRANSLATION COSTS

Languages Pages Cost per 

page Cost 

Initial Enrollment Notice ........................................................................................................................... 8 5 $100 $4,000 

Pre-Transaction Notice ............................................................................................................................ 8 2 100 1,600 

Post Transaction Notice .......................................................................................................................... 8 2 100 1,600 

Total .................................................................................................................................................. .................. 9 ................ 7,200 

A similar analysis conducted by the 

Department estimated that the average 

requests for translations of written 

documents averages 0.098 requests per 

1,000 health benefit plan members.176

For the purposes of this analysis, the 

Department assumes that recipients of 

the notices in this proposal would 

request translations at the same rate. 

The estimated number of translated 

notices requested is summarized in the 

table below. The Department requests 

comment on how frequently translations 

would be requested for such notices. 


ddrumheller on DSK120RN23PROD with PROPOSALS2
5664 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

TABLE 19—TRANSLATED INITIAL ENROLLMENT NOTICES REQUESTED

Year 1 Year 2 Year 3 

Total Initial Enrollment Notices ............................................................................................................................ 954,786 976,384 994,897 

× Percent Requesting Translated Notice ............................................................................................................ 0.0098% 0.0098% 0.0098% 

= Translated Notices Distributed ......................................................................................................................... 94 96 97 

Note: Components may not sum to parts due to rounding. 

TABLE 20—TRANSLATED PRE-TRANSACTION NOTICES REQUESTED

Year 1 Year 2 Year 3 

Total Pre-Transaction Notices ............................................................................................................................. 403,397 526,984 639,538 

× Percent Requesting Translated Notice ............................................................................................................ 0.0098% 0.0098% 0.0098% 

= Translated Notices Distributed ......................................................................................................................... 40 52 63 

Note: Components may not sum to parts due to rounding. 

TABLE 21—TRANSLATED POST-TRANSACTION NOTICES REQUESTED

Year 1 Year 2 Year 3 

Total Post-Transaction Notices ........................................................................................................................... 397,749 519,606 630,585 

× Percent Requesting Translated Notice ............................................................................................................ 0.0098% 0.0098% 0.0098% 

= Translated Notices Distributed ......................................................................................................................... 39 51 62 

Note: Components may not sum to parts due to rounding. 

The Department assumes that it 

would take a clerical professional two 

minutes to prepare and send each 

disclosure. The Department assumes 

that all of the translated notices would 

be sent by mail. The Department 

requests comment on this assumption. 

Additionally, the Department estimates 

that an automatic portability provider 

would incur a cost of $0.66 for postage 

and $0.05 for the material and printing 

costs of each page. The hour burden, 

equivalent cost, postage, and material 

costs are summarized in the table below. 

TABLE 22—BURDEN TO PREPARE AND SEND TRANSLATED DISCLOSURES

[Automatic portability provider] 

Year 1 Year 2 Year 3 

Number of Notices ............................................................................................................................................... 173 199 222 

× Annual Hour Burden per Transaction (Hours) ................................................................................................. 2/60 2/60 2/60 

= Total Hours ....................................................................................................................................................... 5.8 6.6 7.4 

× Labor Cost (Clerical Professional) ................................................................................................................... $63.45 $63.45 $63.45 

= Equivalent Cost ................................................................................................................................................ $365.90 $420.89 $469.53 

Note: Components may not sum to parts due to rounding. 

TABLE 23—MATERIAL AND POSTAGE COST FOR THE TRANSLATED INITIAL ENROLLMENT NOTICES

Year 1 Year 2 Year 3 

Initial Enrollment Notices: 

Number of Notices Sent by Mail .................................................................................................................. 94 96 97 

× Postage and Material Cost per Notice (5 Pages) ..................................................................................... $0.91 $0.91 $0.91 

= Postage and Material Cost ........................................................................................................................ $85.54 $87.36 $88.27 

Note: Components may not sum to parts due to rounding. 

TABLE 24—MATERIAL AND POSTAGE COST FOR THE TRANSLATED PRE-TRANSACTION NOTICES

Year 1 Year 2 Year 3 

Pre-Transaction Notice: 

Number of Notices Sent by Mail .................................................................................................................. 40 52 63 

× Postage and Material Cost per Notice (2 Pages) ..................................................................................... $0.76 $0.76 $0.76 

= Postage and Material Cost ........................................................................................................................ $30.40 $39.52 $47.88 

Note: Components may not sum to parts due to rounding. 


ddrumheller on DSK120RN23PROD with PROPOSALS2
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177The hour burden is estimated as: 1 automatic 

portability provider × 1 hour = 1 hour. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 1 hour × $128.11 = $128.11, 

rounded to $128. 

178The hour burden is estimated as: 1 automatic 

portability provider × 5 hours = 5 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 5 hours × $155.61 = $778.05, 

rounded to $778. 

179The hour burden is estimated as: 1 automatic 

portability provider × 1 hour = 1 hour. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 1 hour × $155.61 = $155.61, 

rounded to $156. 

180The hour burden is estimated as: 1 automatic 

portability provider × 2 hours = 2 hours. The 

equivalent cost is estimated as: 1 automatic 

portability provider × 2 hours × $63.45 = $126.90, 

rounded to $127. 

181 5 U.S.C. 601 et seq. 182 5 U.S.C. 601(2), 603(a); also see 5 U.S.C. 551. 183For recordkeepers, the proposal would require 

automatic portability providers to contractually 

require certain information be provided in 

connection with its services as an automatic 

portability provider. This would likely require the 

automatic portability provider to update contracts 

with plans. The Department estimates that this 

would require plan fiduciaries to execute the 

updated contract. The Department estimates that 

this would take a plan fiduciary 15 minutes. The 

Department does not consider this to be a 

significant impact on plans. For plans, the proposal 

would not require a substantial action, with respect 

to the requirements under PTE 2019–02. 

TABLE 25—MATERIAL AND POSTAGE COST FOR THE TRANSLATED POST-TRANSACTION NOTICES

Year 1 Year 2 Year 3 

Post-Transaction Notice: 

Number of Notices Sent by Mail .................................................................................................................. 39 51 62 

× Postage and Material Cost per Notice (2 Pages) ..................................................................................... $0.76 $0.76 $0.76 

= Postage and Material Cost ........................................................................................................................ $29.64 $38.76 $47.12 

Note: Components may not sum to parts due to rounding. 

9. Website 

The proposal would require the 

automatic portability provider to 

maintain a website with three categories 

of disclosures: (1) a description of all 

the fees and compensation received, 

directly or indirectly, by the automatic 

portability provider for services 

provided in connection with the 

automatic portability transaction; (2) a 

list of recordkeepers for each employersponsored retirement plan with respect 

to which the automatic portability 

provider carries out automatic 

portability transactions; and (3) the 

number of plans and participants 

covered by each recordkeeper. The 

Department assumes that an automatic 

portability provider would already have 

such a website, readily available access 

to the required information, and would 

only incur costs associated with drafting 

and posting the required disclosures. 

The Department estimates that a 

senior executive employed by the 

automatic portability provider would 

spend one hour providing a web 

designer the requirements for the 

disclosures in the first year, resulting in 

an hour burden of one hour with an 

equivalent cost of $128.177 Additionally, 

the Department estimates that it would 

take a web designer five hours to update 

and test the website in the first year, 

resulting in an hour burden of five 

hours and equivalent cost of $778.178

The Department estimates that it would 

take a web developer one hour in 

subsequent years to make any necessary 

revisions or updates to the disclosures, 

resulting in an hour burden of one hour 

with an equivalent cost of $156.179

10. Recordkeeping 

An automatic portability provider 

would be required to maintain records 

sufficient to demonstrate compliance 

with the requirements of Code section 

4975(f)(12) and this regulation. The 

Department expects adequate records 

will be automatically generated through 

the systems created by the automatic 

portability provider and thus would not 

create an additional burden. 

The proposal would require the 

records to be made available to any duly 

authorized employee or representative 

of the Department of Labor or the 

Department of the Treasury within 30 

calendar days of the date of a written 

request for such records. The 

Department estimates that providing 

records to the Department would take a 

clerical professional two hours on 

average to prepare and send requested 

records, resulting in a per request 

equivalent cost of $127.180 The 

Department expects that such requests 

would occur rarely. As such, the 

Department estimates that one request a 

year would result in an average annual 

burden of $127. 

11. Summary 

The paperwork burden estimates are 

summarized as follows: 

Type of Review: New collection. 

Agency: Employee Benefits Security 

Administration, Department of Labor. 

Title: Automatic Portability 

Transaction Regulations. 

OMB Control Number: 1210–NEW. 

Affected Public: Business or other forprofit institution. 

Estimated Number of Respondents: 

185,001. 

Estimated Number of Annual 

Responses: 2,384,846. 

Frequency of Response: Initially, 

Annually, and when engaging in 

exempted transaction. 

Estimated Total Annual Burden 

Hours: 92,887. 

Estimated Total Annual Burden Cost: 

$97,985. 

H. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(RFA) 181 imposes certain requirements 

on rules subject to the notice and 

comment requirements of section 553(b) 

of the Administrative Procedure Act or 

any other law.182 Under section 603 of 

the RFA, agencies must submit an initial 

regulatory flexibility analysis (IRFA) of 

a proposal that is likely to have a 

significant economic impact on a 

substantial number of small entities, 

such as small businesses, organizations, 

and governmental jurisdictions. The 

Department’s IRFA is below. 

The Affected Entities of the 

Regulatory Impact Analysis identifies 

automatic portability providers, 

recordkeepers, and plans as entities 

potentially impacted by the proposal. 

While there may be a substantial 

number of small recordkeepers and 

plans affected by the proposal, the 

Department has determined that there 

would not be a significant impact on 

these entities.183 The analysis below 

estimates the effect on small automatic 

portability providers. 

1. Need for and Objectives of the Rule 

Section 120 of the SECURE 2.0 Act of 

2022 amended Code section 4975 to add 

a statutory exemption for the receipt of 

fees and compensation by an automatic 

portability provider for services 

provided in connection with an 

automatic portability transaction. This 

proposed rule implements the statutory 

prohibited transaction under Code 

section 4975 for automatic portability 

transactions. 

When a plan participant intentionally 

or unintentionally leaves money in a 

former employer’s defined contribution 


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184See SECURE 2.0 Act, Sec. 304. 

185 Government Accountability Office (GAO). 

‘‘401(k) Plans: Greater Protections Needed for 

Forced Transfers and Inactive Accounts.’’ (2014). 

186The Code does not require a mandatory 

distribution of $1000 or less to be rolled into an 

IRA. 

187U.S. Small Business Administration, Table of 

Small Business Size Standards Matched to North 

American Industry Classification System Codes, 

(March 17, 2023), https://www.sba.gov/sites/ 

sbagov/files/2023-03/ 

Table%20of%20Size%20Standards_

Effective%20March%2017%2C%202023

%20%281%29%20%281%29_0.pdf. 

188This estimate is based on data released by the 

NAICS Association. (NAICS Association, Market 

Analysis Profile: NAICS Code & Annual Sales, 

(2022), https://www.naics.com/custom-marketanalysis-profiles/.) 

189Portability Services Network, Our Fees, 

https://psn1.com/learning-center/about-psn/whatare-psns-fees#:∼:text=Key%20aspects%20of%20

PSN’s%20fee,be%20processed

%20at%20no%20charge. 

190The lower bound estimate is calculated as 

60,265 additional transactions × $15 = $903,975. 

The upper bound estimate is calculated as 60,265 

additional transactions × $30 = $1,807,950. 

191The lower bound estimate is calculated as 

399,341 additional transactions × $15 = $5,990,115. 

The upper bound estimate is calculated as 399,341 

additional transactions × $30 = $11,980,230. 

plan, depending on plan provisions the 

former employer has the option to cash 

out balances of $5,000 or less and to 

force a transfer of balances between 

$1,001 and $5,000 to a Default IRA. This 

Default IRA transfer is commonly 

referred to as a ‘‘force-out’’ and is only 

implemented if the participant does not 

elect to have the account balance paid 

directly to an eligible retirement plan or 

to receive the balance directly. As part 

of the SECURE 2.0 Act, the $5,000 

threshold is being raised to $7,000.184

Default IRAs, while intended to 

preserve retirement assets in 

conservatively managed accounts, 

typically yield only minimal returns for 

investors while often imposing 

considerable fees.185 Additionally, these 

Default IRAs, established on behalf of 

participants, are more susceptible to 

being abandoned or forgotten while 

potentially exposing those with 

multiple accounts to unnecessary losses 

from duplicated fees that might 

otherwise be avoided were their assets 

consolidated into a single account. 

Cashouts also directly impact 

participants by removing their assets 

from tax-favored retirement accounts.186

Automated portability services allow 

plan providers to transfer assets into the 

plan of a participant’s new employer, 

effectively automating roll-ins from 

Default IRAs established on behalf of 

the separated employee to consolidate 

assets into an active, employersponsored defined contribution plan. 

2. Affected Small Entities 

The Department anticipates an 

automatic portability provider would be 

classified as NAICS 522320, Financial 

Transactions Processing, Reserve, and 

Clearinghouse Activities. According to 

the size standards set by the Small 

Business Administration, entities with 

NAICS 522320 are considered small if 

they have average annual receipts less 

than $47 million.187 According to data 

published by the NAICS Association, by 

this standard, approximately 99 percent 

of entities with NAICS 522320 are 

considered small entities.188

As discussed in the Regulatory Impact 

Analysis, the Department assumes that 

only one entity would rely on the 

proposed exemption. This entity, RCH, 

in service of PSN, has stated that the 

maximum per-transaction fee for its 

services is $30.189 Further, as discussed 

in the Regulatory Impact Analysis, the 

Department estimates that there would 

be 60,265 additional transactions in the 

first year and an average of 399,341 

additional transactions in years two 

through ten. If the average transaction 

fee ranged between $15 and $30, the 

annual additional receipts in the first 

year for this service would be between 

$0.9 and $1.8 million 190 and between 

$6.0 million and $12.0 million in years 

two through ten.191

The automatic portability services 

operations at RCH represent just one 

portion of the business. However, 

because the entity is private, the 

Department does not have access to its 

total annual receipts. While the 

Department estimates that the annual 

receipts of RCH may exceed the small 

entity size thresholds, the Department 

cannot confirm. Accordingly, the 

Department has conducted an analysis 

of the costs imposed by the proposal. 

3. Impact of the Rule 

As discussed in the Regulatory Impact 

Analysis, the Department assumes that 

one entity would rely on the proposed 

exemption. The Department is 

presenting the estimated costs and costs 

savings of this entity, RCH/PSN. RCH/ 

PSN currently operates under an 

individual exemption, PTE 2019–02. 

The Regulatory Impact Analysis 

considers the costs and cost savings this 

proposal would impose, with respect to 

the requirements under PTE 2019–02. 

The Department estimates that the 

proposal would result in a cost savings 

for an automatic portability provider 

operating under the conditions in PTE 

2019–02. The table below summarizes 

the costs and cost savings under the 

proposal. For more information on these 

estimates, refer to the Cost section of the 

Regulatory Impact Analysis. 

TABLE 26—PER ENTITY COSTS AND COST SAVINGS FOR AUTOMATIC PORTABILITY PROVIDERS

Year 1 Years 2–10 

(average) 

Acknowledgment of Fiduciary Status ...................................................................................................... $391,434.34 ................................

Policies and Procedures .......................................................................................................................... 1,593.40 $318.68 

Independent Audit .................................................................................................................................... 6,034.53 5,397.17 

Corrections to Audit ................................................................................................................................. 6,188.20 3,001.40 

Website Requirements ............................................................................................................................ 906.16 155.61 

Notice to the Secretary of Labor ............................................................................................................. 15.86 ................................

Initial Enrollment Notice a ......................................................................................................................... b (1,426,704.81) b (1,302,599.20) 

Pre-Transaction Notice a .......................................................................................................................... 132,859.13 824,218.62 

Post Transaction Notice a ........................................................................................................................ 855,059.22 1,580,430.41 

Total .................................................................................................................................................. b (32,613.97) 1,110,922.70 

Note: Components may not sum to parts due to rounding. a Includes costs associated with providing disclosures in a culturally and linguistically appropriate manner. 

bThis value represents a cost savings, when compared to requirements for RCH/PSN under PTE 2019–02. 


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192 2 U.S.C. 1501 et seq. (1995). 

193Enhancing the Intergovernmental Partnership, 

58 FR 58093 (Oct. 28, 1993). 194Federalism, 64 FR 153 (Aug. 4, 1999). 

4. Duplicate, Overlapping, or Relevant 

Federal Rules 

The proposal is intended to align with 

the requirements in the individual 

exemption PTE 2019–02. The proposal 

also incorporates the statutory 

exemption requirements in the SECURE 

2.0 Act and supplements them 

accordingly. While PTE 2019–02 and 

the statutory exemption, as 

supplemented by this proposal, differ 

slightly, the Department has worked to 

ensure that the requirements are 

complimentary. Because PTE 2019–02 

and the statutory exemption provide 

prohibited transaction relief for the 

same categories of transactions, RCH/ 

PSN will only need to rely on either the 

statutory or individual exemption. 

Therefore, it is important for the 

requirements of the statutory and 

individual exemptions to be aligned. 

Please note that RCH/PSN most likely 

will rely on the statutory exemption, 

because it has an unlimited term while 

the class exemption is limited to a fiveyear term that expires on July 31, 2024. 

The Department expects that RCH/PSN 

will rely upon the statutory exemption 

and this proposal once it becomes 

effective rather than PTE 2019–02. 

Because PTE 2019–02 is an individual 

exemption granted solely to RCH and its 

affiliates, any other automatic 

portability providers that enter the 

market will only be able to rely upon 

the statutory exemption and this 

proposal, so there will be no duplicative 

requirements imposed on them. 

5. Description of Alternatives 

Considered 

This section of the IRFA analysis 

addresses alternatives the Department 

considered when developing the 

proposal. As stated above in this 

Regulatory Impact Analysis, the 

Department estimates that only one 

automatic portability provider would 

operate under the proposal. Therefore, 

the regulatory alternatives considered 

for small entities does not differ from 

those considered in the Regulatory 

Impact Analysis. The Department 

considered the following alternatives: 

• Relying Only on Sub-Regulatory 

Guidance—Section 120(c) directs the 

Secretary of Labor to ‘‘issue such 

guidance as may be necessary to carry 

out the purposes of the amendments 

made by this section, including 

regulations or other guidance’’ no later 

than 12 months after the enactment of 

the statute. The Department considered 

whether its responsibilities under 

section 120(c) of SECURE 2.0 could be 

satisfied by issuing only sub-regulatory 

guidance. 

• Issuing More Limited Regulations— 

The Department considered issuing 

limited regulations concerning only the 

portions of Code section 4975(f)(12) 

focused on the audit and the 

acknowledgement of fiduciary status, 

both of which called on the Department 

to promulgate regulations to determine 

compliance. In so doing, the Department 

could have issued sub-regulatory 

guidance with respect to compliance 

with the rest of the exemption. 

• Not Requiring an Initial Enrollment 

Notice—The Department considered not 

including a requirement for an initial 

enrollment notice in the proposed 

regulations. The statute only requires 

that an automatic portability provider 

furnish IRA owners with a pretransaction notice and a post-transaction 

notice. Additional notices were left to 

the discretion of the Department in 

connection with carrying out the 

purposes of the statutory exemption. 

• Not Requiring the Audit to be an 

Independent Audit—The Department 

considered proposing an audit that 

could be conducted as an internal audit. 

A more in-depth discussion of the 

regulatory alternatives and the 

Department’s decision process is 

included in the Regulatory Alternatives 

section of the Regulatory Impact 

Analysis above. 

I. Unfunded Mandates Reform Act 

Title II of the Unfunded Mandates 

Reform Act of 1995 requires each 

Federal agency to prepare a written 

statement assessing the effects of any 

Federal mandate in a proposed or final 

agency rule that may result in an 

expenditure of $100 million or more 

(adjusted annually for inflation with the 

base year 1995) in any one year by state, 

local, and tribal governments, in the 

aggregate, or by the private sector.192

For purposes of the Unfunded Mandates 

Reform Act, as well as Executive Order 

12875, this proposal does not include 

any Federal mandate that the 

Department expects would result in 

such expenditures by state, local, or 

tribal governments, or the private 

sector.193

J. Federalism Statement 

Executive Order 13132 outlines 

fundamental principles of federalism, 

and requires adherence by Federal 

agencies to specific criteria in the 

process of their formulation and 

implementation of policies that have 

‘‘substantial direct effects’’ on the states, 

the relationship between the national 

government and states, or on the 

distribution of power and 

responsibilities among the various 

levels of government.194 Federal 

agencies promulgating regulations that 

have federalism implications must 

consult with state and local officials and 

describe the extent of their consultation 

and the nature of the concerns of state 

and local officials in the preamble to the 

final rule. 

In the Department’s view, this 

proposal will not have federalism 

implications because it would not have 

direct effects on the states, on the 

relationship between the national 

government and the states, nor on the 

distribution of power and 

responsibilities among various levels of 

government. The Department welcomes 

input from affected states regarding this 

assessment. 

Statutory Authority 

This regulation is issued pursuant to 

the authority in section 505 of ERISA 

(Pub. L. 93–406, 88 Stat. 894; 29 U.S.C. 

1135), section 102 of Reorganization 

Plan No. 4 of 1978, 5 U.S.C. App. 237, 

Public Law 117–328, 136 Stat. 4459, and 

under Secretary of Labor’s Order No. 1– 

2011, 77 FR 1088 (Jan. 9, 2012). 

List of Subjects in 29 CFR Part 2550 

Employee benefit plans, Individual 

retirement accounts, Pensions, Plans. 

For the reasons set forth in the 

preamble, the Department is proposing 

to amend 29 CFR part 2550 as follows: 

PART 2550—RULES AND 

REGULATIONS FOR FIDUCIARY 

RESPONSIBILITY 

■ 1. The authority citation for part 2550 

is revised to read as follows: 

Authority: 29 U.S.C. 1135 and Secretary of 

Labor’s Order No. 1–2011, 77 FR 1088 

(January 9, 2012). Sec. 102, Reorganization 

Plan No. 4 of 1978, 5 U.S.C. App. At 727 

(2012). Sec. 2550.401c–1 also issued under 

29 U.S.C. 1101. Sec. 2550.404a–1 also issued 

under sec. 657, Pub. L. 107–16, 115 Stat 38. 

Sec. 2550.404a–2 also issued under sec. 657 

of Pub. L. 107–16, 115 Stat. 38. Sections 

2550.404c–1 and 2550.404c–5 also issued 

under 29 U.S.C. 1104. Sec. 2550.408b–1 also 

issued under 29 U.S.C. 1108(b)(1). Sec. 

2550.408b–19 also issued under sec. 611, 

Pub. L. 109–280, 120 Stat. 780, 972. Sec. 

2550.412–1 also issued under 29 U.S.C. 1112. 

Sec. 2550.4975f–12 also issued under Pub. L. 

117–328, 136 Stat. 4459. 

■ 2. Add § 2550.4975f–12 to read as 

follows: 


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§ 2550.4975f–12 Rules relating to 

automatic portability transactions. 

(a) In general and scope of exemption. 

(1) Internal Revenue Code (Code) 

section 4975(d)(25) exempts from the 

excise taxes imposed by Code section 

4975(a) and (b), by reason of Code 

sections 4975(c)(1)(D) and (E), the 

receipt of fees and compensation by an 

automatic portability provider for 

services provided in connection with an 

automatic portability transaction. Code 

section 4975(d)(25) further exempts 

from the excise taxes imposed by Code 

section 4975(a) and (b), by reason of 

Code section 4975(c)(1)(F), the receipt of 

a fee by an automatic portability 

provider from an employer-sponsored 

retirement plan sponsor in lieu of a fee 

imposed on an individual retirement 

plan owner. Code section 4975(f)(12) 

establishes conditions for automatic 

portability transactions to be covered by 

the exemption. Effective December 31, 

1978, section 102 of the Reorganization 

Plan No. 4 of 1978, 5 U.S.C. App. 237, 

transferred the authority of the Secretary 

of the Treasury to promulgate 

regulations of the type published herein 

to the Secretary of Labor. This section 

implements the statutory exemption and 

conditions set forth at Code section 

4975(d)(25) and (f)(12). 

(2) Automatic portability transaction. 

An automatic portability transaction is a 

transfer of assets made: 

(i) From an individual retirement plan 

which is established on behalf of an 

individual and to which amounts were 

transferred under Code section 

401(a)(31)(B)(i), 

(ii) To an employer-sponsored 

retirement plan described in clause (iii), 

(iv), (v), or (vi) of Code section 

402(c)(8)(B) (other than a defined 

benefit plan) in which such individual 

is an active participant, and 

(iii) After such individual has been 

given advance notice of the transfer and 

has not affirmatively opted out of such 

transfer. 

(3) Automatic portability provider. An 

automatic portability provider is a 

person, other than an individual, that 

executes transfers described in 

paragraph (a)(2) of this section. 

(4) Code section 4975(d)(25) does not 

contain an exemption for other acts 

described in Code section 4975(c)(1)(D) 

and (E) (relating to transfer to, or use by 

or for the benefit of, a disqualified 

person of the income or assets of a plan 

and to fiduciaries as defined in Code 

section 4975(e)(3) dealing with the 

income or assets of plans in their own 

interest or for their own account) that 

are not services provided in connection 

with automatic portability transactions. 

Services shall not be considered 

provided in connection with an 

automatic portability transaction if the 

services would have been provided in 

the absence of an automatic portability 

transaction or anticipation of a future 

automatic portability transaction. 

Except as described in paragraph (a)(1) 

of this section, Code section 4975(d)(25) 

does not contain an exemption for acts 

described in Code section 4975(c)(1)(F) 

(relating to fiduciaries as defined in 

Code section 4975(e)(3) receiving 

consideration for their own personal 

account from any party dealing with a 

plan in connection with a transaction 

involving the income or assets of the 

plan). Such acts are separate 

transactions not described in Code 

section 4975(d)(25). Code section 

4975(d)(25) also does not contain an 

exemption from other provisions of the 

Code, such as section 401, or other 

provisions of law which may impose 

requirements or restrictions relating to 

the transactions which are exempt 

under section 4975(d)(25). 

(b) This paragraph (b) sets forth 

conditions that must be satisfied in 

order for an automatic portability 

transaction to be covered by the 

statutory exemption in Code section 

4975(d)(25). 

(1) Acknowledgment of fiduciary 

status. The automatic portability 

provider shall acknowledge in writing 

that it is a fiduciary with respect to the 

individual retirement plan in 

connection with its processing of 

automatic portability transactions: 

(i) Upon being engaged by an 

employer-sponsored retirement plan; 

and 

(ii) In the notices to individuals 

described in paragraphs (b)(5)(iii) 

through (v) of this section. 

(2) Fees and compensation. The fees 

and compensation received, directly or 

indirectly, by the automatic portability 

provider (including its affiliates) for 

services provided in connection with 

the automatic portability transaction 

(including any fees or compensation in 

connection with, but received before, 

the transaction): 

(i) Do not exceed reasonable 

compensation, as the term is defined in 

26 CFR 54.4975–6(e); and 

(ii) Are fully disclosed to and 

approved in writing in advance of the 

transaction by a fiduciary of the 

employer-sponsored retirement plan 

described in paragraph (a)(2)(ii) of this 

section which is independent of the 

automatic portability provider. The 

information that shall be disclosed 

includes the information that is required 

to be disclosed under § 2550.408b–2(c) 

by a covered service provider as defined 

in § 2550.408b–2(c)(1)(iii)(A) (services 

as a fiduciary within the meaning of 

ERISA section 3(21)) and § 2550.408b– 

2(c)(1)(iii)(B) (recordkeeping services). 

(iii) An automatic portability provider 

(including its affiliates) may not receive 

or pay third-party fees or compensation 

to any party in connection with an 

automatic portability transaction. This 

restriction on third-party compensation 

does not apply to a fee paid by the 

sponsor of an employer-sponsored 

retirement plan that is in lieu of a fee 

imposed on an individual retirement 

plan owner or a fee that is shared with 

another automatic portability provider, 

as long as the overall fee associated with 

the automatic portability transaction 

does not increase as compared to the 

fees disclosed to the plan administrator 

and individuals in the notices described 

in paragraphs (b)(5)(ii) and (iii) of this 

section. This restriction does not 

prevent an automatic portability 

provider (or its affiliates) from receiving 

fees for services provided to an 

individual retirement plan or employersponsored retirement plan that are in 

addition to services provided in 

connection with the execution of 

automatic portability transactions. The 

prohibited transaction relief provided in 

Code section 4975(d)(25) does not apply 

to fees or compensation paid by an 

employer-sponsored retirement plan or 

to fees or compensation for such 

additional services. 

(iv) Automatic portability providersponsored plan. An automatic 

portability provider (including its 

affiliates) shall not receive any fees or 

compensation in connection with an 

automatic portability transaction 

involving a plan that is sponsored or 

maintained by the automatic portability 

provider or an affiliate. 

(3) Data usage and protection. An 

automatic portability provider 

(including its affiliates) shall not market 

or sell to third parties participantrelated data or individual retirement 

plan data that the automatic portability 

provider accesses or obtains in 

connection with an automatic 

portability transaction. An automatic 

portability provider shall take all 

necessary steps that a reasonable 

fiduciary would take to safeguard 

participant and individual retirement 

plan data to the extent the automatic 

portability provider exercises control 

over the data. If data is improperly 

accessed, the automatic portability 

provider shall take appropriate remedial 

actions that to safeguard the data based 

on the sensitivity of the accessed data 

and the nature and severity of the 

breach. 

(4) Open participation and limitation 

on exclusive engagements. (i) The 


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automatic portability provider shall 

offer to execute automatic portability 

transactions on the same terms to any 

employer-sponsored retirement plan 

described in paragraph (a)(2)(ii) of this 

section. 

(ii) The automatic portability provider 

shall not restrict or limit the ability of 

unrelated third parties to develop, 

market, and/or maintain a locate-andmatch process or to execute automatic 

portability transactions separate from 

the automatic portability provider. The 

automatic portability provider also shall 

not restrict the ability of an employersponsored retirement plan, individual 

retirement plan provider (including 

custodians, trustees, and issuers), or 

recordkeeper to engage other automatic 

portability providers to execute 

automatic portability transactions. 

(5) Notices—(i) Notice to the Secretary 

of Labor. Within 90 calendar days of the 

date that the automatic portability 

provider begins operating an automatic 

portability transaction program that is 

intended to rely on the prohibited 

transaction relief provided by Code 

section 4975(d)(25), the automatic 

portability provider shall notify the 

Secretary of Labor at auto-portability@

dol.gov that it is operating as an 

automatic portability provider and 

relying on Code section 4975(d)(25), 

(f)(12), and these regulations. Each 

automatic portability provider that 

relies upon the exemption must report 

the legal name of each business entity 

relying upon the exemption in the email 

to the Secretary and any name under 

which the automatic portability 

provider may be operating. This 

notification needs to be reported only 

once unless there is a change to the legal 

name or operating name(s) of the 

automatic portability provider relying 

upon the exemption. The automatic 

portability provider shall have 90 

calendar days to report a change to the 

legal or operating name. The automatic 

portability provider may notify the 

Secretary if it is no longer operating in 

reliance upon this exemption. 

(ii) Notice to plan administrator. The 

automatic portability provider shall 

provide each plan administrator a 

model description of the automatic 

portability program, including fees and 

expenses related to the automatic 

portability program and automatic 

portability transactions. For any 

employer-sponsored plan that is subject 

to ERISA’s summary plan description 

requirement, the automatic portability 

provider shall send a notice to each 

administrator of such plan that 

participates in an arrangement with the 

automatic portability provider that the 

administrator must fully describe the 

automatic portability program and 

disclose fees related to an automatic 

portability transaction in its summary 

plan description or summary of material 

modifications. The model description 

must be written in a manner so that it 

could be used by the plan administrator 

to fulfill summary plan description or 

summary of material modifications 

obligations, as relevant. 

(iii) Initial enrollment notice. The 

automatic portability provider shall 

furnish each individual on whose behalf 

the individual retirement plan was 

established an initial notice within 15 

calendar days of the individual 

retirement plan’s enrollment or 

participation in an arrangement that 

includes the possibility of a future 

automatic portability transaction 

executed by the automatic portability 

provider. The notice shall include: 

(A) A description of the automatic 

portability transaction, including that 

the automatic portability provider will 

send a notice at least 60 calendar days, 

but no more than 90 calendar days, in 

advance of executing an automatic 

portability transaction; 

(B) A description of the applicable 

account fees that will be charged in 

connection with the automatic 

portability transaction; 

(C) A clear and prominent description 

of the individual’s right to affirmatively 

elect not to participate in the 

transaction, the other available 

distribution options, and the procedures 

to take advantage of such options; 

(D) The contact information for the 

automatic portability provider and the 

individual retirement plan provider (if 

not the automatic portability provider), 

including toll-free customer service 

numbers; and 

(E) The right to designate a 

beneficiary and the procedures to do so, 

including the appropriate party to 

contact if the automatic portability 

provider is not the provider of the 

individual retirement plan. 

(iv) Pre-transaction notice. The 

automatic portability provider shall 

furnish each individual on whose behalf 

the individual retirement plan was 

established a pre-transaction notice. The 

notice shall be provided at least 60 

calendar days, but not more than 90 

calendar days, in advance of an 

automatic portability transaction. The 

notice shall include: 

(A) A description of the automatic 

portability transaction and a complete 

and accurate statement of all fees which 

will be charged and all compensation 

which will be received by the automatic 

portability provider (including its 

affiliates) in connection with the 

transaction. The description of the 

automatic portability transaction shall 

include that the individual retirement 

plan assets will not be transferred for at 

least 60 calendar days from the date of 

the notice, that the individual has been 

matched with an account in an 

employer-sponsored retirement plan of 

a current employer, the name of the 

employer, and the name of the plan; 

(B) A statement requesting the 

individual’s affirmative consent to 

transfer the assets from the individual 

retirement plan to the account in the 

employer-sponsored retirement plan; 

(C) A description of the individual’s 

right to affirmatively elect not to 

participate in the transaction, the other 

available distribution options, the 

deadline by which the individual must 

make an election, and the procedures 

for doing so. The description shall 

indicate that if the individual does not 

affirmatively consent or elect not to 

participate by the deadline, the 

automatic portability provider will 

consider the individual to have given 

consent to the automatic portability 

transaction; 

(D) The contact information for the 

automatic portability provider and the 

individual retirement plan provider (if 

not the automatic portability provider) 

including toll-free customer service 

numbers that the individual may 

contact to make an election, pursue 

other available distributions options, or 

for other information or assistance with 

the automatic portability program; and 

(E) The right to designate a 

beneficiary and the procedures to do so 

for the individual retirement plan if it 

is not transferred to an employersponsored retirement plan in which the 

individual is an active participant, 

including the appropriate party to 

contact if the automatic portability 

provider is not the provider of the 

individual retirement plan. 

(v) Post-transaction notice. Not later 

than 3 business days after an automatic 

portability transaction is completed, the 

automatic portability provider shall 

provide notice to the individual on 

whose behalf the individual retirement 

plan was established of: 

(A) The actions taken by the 

automatic portability provider with 

respect to the individual retirement 

plan, including that the individual was 

matched with an account in an 

employer-sponsored retirement plan of 

the individual’s current employer; 

(B) All relevant information regarding 

the location and amount of any 

transferred assets which includes, but is 

not limited to, the name of the employer 

and the name of the plan; 

(C) A statement of fees charged 

against the individual retirement plan 


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5670 Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Proposed Rules 

by the automatic portability provider or 

its affiliates in connection with the 

transfer; and 

(D) A customer service telephone 

number at which the individual can 

contact the automatic portability 

provider. 

(vi) Accessibility of notices. (A) The 

notices described in paragraphs 

(b)(5)(iii) through (v) of this section 

shall be written in a manner calculated 

to be understood by the average person, 

which for purposes of these regulations, 

is the average intended recipient. The 

disclosures must be accurate, not 

include inaccurate or misleading 

statements, and be sufficiently 

comprehensive to apprise the individual 

of their rights and obligations under the 

automatic portability program, must not 

be formatted to have the effect of 

misleading, misinforming or failing to 

inform the recipient, and be written in 

a culturally and linguistically 

appropriate manner. In fulfilling these 

requirements, the automatic portability 

provider shall exercise considered 

judgment and discretion by taking into 

account such factors as the level of 

comprehension and education of the 

typical intended recipient and the 

complexity of the terms of the program. 

Consideration of these factors will 

usually require the limitation or 

elimination of technical jargon and of 

long, complex sentences, the use of 

clarifying examples and illustrations, 

the use of clear cross references, and a 

table of contents be included. 

(B) Standards for culturally and 

linguistically appropriate notices. An 

automatic portability provider is 

considered to provide relevant notices 

and disclosures in a ‘‘culturally and 

linguistically appropriate manner’’ if the 

automatic portability provider meets all 

the requirements of the paragraph 

(b)(5)(vi)(C) of this section with respect 

to the applicable non-English languages 

described in paragraph (b)(5)(vi)(D) of 

this section. 

(C) Requirements. (1) The automatic 

portability provider must provide oral 

language services (such as a telephone 

customer assistance hotline) that 

include the ability to answer questions 

in any applicable non-English language 

and provide assistance with automatic 

portability transactions in any 

applicable non-English language; 

(2) The automatic portability provider 

must provide, upon request, a notice or 

disclosure in any applicable nonEnglish language; and 

(3) The automatic portability provider 

must include in the English versions of 

all required notices and disclosure, a 

statement prominently displayed in any 

applicable non-English language clearly 

indicating how to access the language 

services provided by the automatic 

portability provider. 

(D) Applicable non-English language. 

With respect to an address in any 

United States county to which a notice 

is sent, a non-English language is an 

applicable non-English language if ten 

percent or more of the population 

residing in the county is literate only in 

the same non-English language, as 

determined in guidance published by 

the Secretary of Labor. 

(vii) Ensuring participants receive 

notices and disclosures. The automatic 

portability provider shall adopt and 

implement prudent policies and 

procedures to ensure that it obtains or 

has access to current and accurate 

census and contact data on individual 

participants and individuals on whose 

behalf an individual retirement plan is 

established, necessary to effectively 

administer the automatic portability 

program. An individual cannot 

participate in the automatic portability 

provider’s automatic portability 

transaction program unless the 

automatic portability provider has a 

reasonable basis for believing the 

automatic portability provider has a 

valid address for the individual. Notices 

and disclosures to participants and 

individuals must be made using 

methods that satisfy the disclosure 

requirements in § 2520.104b–1(b) of this 

chapter. 

(6) Frequency of searches. The 

automatic portability provider shall use 

a locate-and-match service to query 

cooperating record-keepers, on at least a 

monthly basis, whether the individual 

for whose benefit the individual 

retirement plan is established has an 

active account in an employersponsored retirement plan. The 

automatic portability provider shall take 

prudent steps to verify the accuracy of 

the individual’s information (including 

such information as the participant’s 

social security number, first name, last 

name, middle name or initial, date of 

birth, phone number, etc.) to ensure the 

match is correct. The verification steps 

must include ongoing participant 

address validation searches via 

automated checks of: 

(i) National Change of Address 

records; 

(ii) Two separate commercial locator 

databases; and 

(iii) Any internal databases 

maintained by the automatic portability 

provider. If a valid address is not 

obtained from the automated checks, the 

automatic portability provider must also 

perform a manual internet-based search. 

These verification steps must be 

performed at least twice in the first year 

an account is entered into the automatic 

portability provider system and once a 

year thereafter. 

(7) Monitoring transfers into an 

employer-sponsored retirement plan. 

The automatic portability provider shall 

ensure that an employer-sponsored 

retirement plan that accepts transfers 

into the plan in connection with an 

automatic portability transaction 

designates a plan official responsible for 

monitoring transfers into the plan due to 

automatic portability transactions, 

including ensuring the amounts 

received on behalf of a participant are 

invested properly. Amounts received 

are deemed to be invested properly if 

made in accordance with the 

participant’s current investment 

election under the plan or, if no election 

is made or permitted, in the plan’s 

qualified default investment alternative 

under § 2550.404c–5 or in another 

investment selected by a fiduciary with 

respect to such plan. 

(8) Timeliness of automatic portability 

transaction execution. If the automatic 

portability provider identifies a match, 

and the affected individual does not 

affirmatively elect not to participate in 

the transaction within the timeframe 

indicated in the pre-transaction notice, 

the automatic portability provider shall, 

after liquidating the assets of the 

individual retirement plan to cash in 

accordance with the timeframes 

established in the policies and 

procedures adopted pursuant to 

paragraph (b)(9) of this section, transfer 

the account balance of such plan as 

soon as practicable to the participant’s 

account in the employer-sponsored 

retirement plan. 

(9) Limitation on exercise of 

discretion and on policies and 

procedures. The automatic portability 

provider shall neither have nor exercise 

discretion to affect the timing or amount 

of the transfer, other than to deduct the 

appropriate fees as described in 

paragraph (b)(2) of this section. An 

automatic portability provider will be 

deemed to satisfy this paragraph (b)(9) 

if it establishes, maintains, and follows 

written policies and procedures that set 

specific standards and timeframes that 

apply to all automatic portability 

transactions. The policies and 

procedures shall, at a minimum, 

address: 

(i) The process to ensure that an 

employer-sponsored retirement plan 

that accepts transfers into the plan in 

connection with an automatic 

portability transaction designates a 

representative that will be responsible 

for monitoring transfers into the plan 

due to automatic portability transactions 

and investment of amounts received; 


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(ii) The process and timing for 

liquidating the assets of the individual 

retirement plan to cash and closing the 

individual retirement plan; 

(iii) The process for verifying and 

validating that the correct fees are 

withdrawn from the individual 

retirement plan; 

(iv) The process and timing for 

transmitting assets to employersponsored retirement plans; 

(v) The process for verifying the assets 

were received by the employersponsored retirement plan; and 

(vi) The process for sending all 

required notices to plan participants or 

individuals on whose behalf an 

individual retirement plan is 

established, in accordance with 

paragraph (h) of this section. 

(c) Annual audit and corrections. (1) 

An automatic portability provider shall 

retain an independent auditor to 

conduct an annual audit to assist the 

automatic portability provider in 

demonstrating compliance with the 

automatic portability provider’s policies 

and procedures, the requirements of 

Code section 4975(d)(25), (f)(12), and 

these regulations and identifying any 

instances of noncompliance. The 

auditor shall, at a minimum, review: the 

policies and procedures, a 

representative sample of the required 

disclosures, a representative sample of 

automatic portability transactions, and 

the requirements of Code section 

4975(d)(25), 4975(f)(12), and these 

regulations. The auditor shall have 

appropriate technical training and 

proficiency with respect to ERISA Title 

I, the Code, and the automatic 

portability transactions described in 

these regulations to conduct the audit. 

(2) Independence of auditor. An 

auditor is independent if the automatic 

portability provider does not have an 

ownership interest in or control the 

auditor and the auditor derives no more 

than two percent of its annual revenue 

from services provided directly or 

indirectly to the automatic portability 

provider or any of its affiliates. 

(3) Access to information. The 

automatic portability provider shall 

grant the auditor access to its automatic 

portability operations and records 

(including, as necessary, the operations 

and records of its affiliates) sufficient to 

allow the auditor to make the 

determinations and findings required by 

these regulations. 

(4) Audit report findings and 

determinations. The auditor shall 

prepare a written audit report signed by 

the auditor. The written audit report 

shall include the following findings and 

determinations: 

(i) The total number of completed 

automatic portability transactions 

during the audit period; 

(ii) Whether the notices in the 

reviewed sample met the timing and 

content requirements of Code section 

4975(f)(12) and these regulations and 

were delivered in a manner reasonably 

designed to ensure affected individuals 

would receive the notices; 

(iii) Whether any required notices 

were returned as undeliverable and 

what steps were taken by the automatic 

portability provider to address 

undeliverable notices; 

(iv) Whether the notices in the 

reviewed sample were written in a 

manner reasonably calculated to be 

understood by the average intended 

recipient, including whether the notices 

include inaccurate or misleading 

statements; 

(v) Whether the appropriate accounts 

in the employer-sponsored retirement 

plan in the reviewed sample received all 

the assets due as a result of the 

automatic portability transaction; 

(vi) A summary of the fees individuals 

were charged by the automatic 

portability provider (and any affiliates) 

for services provided in connection with 

automatic portability transactions, 

including whether those fees increased 

since the last report; 

(vii) Whether the fees and 

compensation received by the automatic 

portability provider (including its 

affiliates) in connection with the 

automatic portability transactions are 

consistent with the fees authorized by 

appropriate plan fiduciaries and did not 

exceed reasonable compensation, as 

described in paragraph (b)(2)(i) of this 

section; 

(viii) Whether all requirements of 

Code section 4975(f)(12) and these 

regulations were satisfied with respect 

to: 

(A) The policies and procedures; and 

(B) The transactions and disclosures 

that were reviewed; 

(ix) A summary of compliance issues 

reported to or discovered by the auditor, 

the auditor’s recommendations, and the 

extent to which the automatic 

portability provider has addressed or is 

addressing the issues pursuant to the 

correction procedures in paragraph 

(c)(9) of this section; 

(x) Any other recommendations from 

the auditor to improve the policies and 

procedures and overall execution of 

automatic portability transactions to 

ensure compliance with the 

requirements of Code section 4975(f)(12) 

and these regulations; and 

(xi) A description of the auditor’s 

methodology and procedures in 

performing the audit. 

(5) Additional information to be 

included in the audit report. The 

written audit report shall also include: 

(i) The number of mandatory 

distributions into individual retirement 

plans described in paragraph (a)(2)(i) of 

this section for which the automatic 

portability provider is conducting 

searches as required by paragraph (b)(6) 

of this section; and 

(ii) The number of individual 

retirement plans described in paragraph 

(a)(2)(i) of this section: 

(A) Which have been transferred to 

designated beneficiaries; 

(B) For which the automatic 

portability provider is searching for next 

of kin due to the death of an account 

holder without a designated beneficiary; 

and 

(C) That were reduced to a zero 

balance while in the automatic 

portability provider’s custody. 

(6) Records not in possession of the 

automatic portability provider. If the 

automatic portability provider does not 

have access to the records or 

information to be included in the audit 

report, the automatic portability 

provider, as a condition of its services, 

shall require that the appropriate 

information is provided to the automatic 

portability provider. 

(7) Timing of the audit report and 

submission to the Secretary of Labor. 

The written audit report shall be 

completed within 180 calendar days 

following the annual period to which 

the audit relates. The automatic 

portability provider shall submit the 

written audit report to the Secretary of 

Labor at auto-portabilityaudit@dol.gov 

within 30 calendar days of completion. 

(8) Certification of audit review and 

addressing compliance issues. The 

automatic portability provider shall 

include a certification filed with the 

written audit report, under penalty of 

perjury, that the automatic portability 

provider reviewed the audit report. The 

automatic portability provider shall also 

certify that it has addressed, corrected, 

or remedied any noncompliance or 

inadequacy in its compliance or has an 

appropriate written plan to address any 

such issues identified in the audit 

report. 

(9)(i) Correction procedures. The 

automatic portability provider shall 

establish procedures for the correction 

of failures to comply with Code section 

4975(f)(12) and these regulations. The 

procedures shall, at a minimum, require 

the automatic portability provider to 

notify the auditor during the applicable 

audit cycle of any correction(s) the 

automatic portability provider made on 

its own. The automatic portability 

provider may engage in corrections on 


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its own, without the auditor’s input and 

without losing relief under Code section 

4975(d)(25), if: 

(A) Either the violation did not result 

in losses to the individual retirement 

plan or the automatic portability 

provider made the individual retirement 

plan whole for any resulting losses; 

(B) The automatic portability provider 

corrects the violation and documents 

the correction in writing within 30 

calendar days of correction; 

(C) The correction occurs no later 

than 90 calendar days after the 

automatic portability provider learned 

of the violation or reasonably should 

have learned of the violation; and 

(D) All instances of noncompliance 

and accompanying corrections are 

reported in writing to the auditor. 

(ii) Auditor recommendations. If the 

auditor determines the automatic 

portability provider was not in 

compliance with any provision of Code 

section 4975(f)(12) or these regulations 

during the audit period, the auditor 

shall identify the instances of 

noncompliance in the audit report along 

with a description of corrective actions 

taken by the automatic portability 

provider and any recommended 

additional corrections. An automatic 

portability provider will not be treated 

as having failed to comply with any 

provision of Code section 4975(f)(12) or 

these regulations, provided it corrects 

any instance of noncompliance 

identified by the auditor as soon as 

reasonably practicable. 

(10) Additional corrective actions. 

The Secretary of Labor may require the 

automatic portability provider to submit 

to supplemental audits and corrective 

actions, including a temporary 

prohibition from relying on the 

exemption if the automatic portability 

provider or an affiliate is found to be: 

(i)(A) Engaging in a systematic pattern 

or practice of violating any provision of 

Code section 4975(f)(12) or this 

regulation; 

(B) Intentionally violating any 

provision of Code section 4975(f)(12) or 

this regulation; or 

(C) Providing materially misleading 

information to the Secretary of Labor, 

Secretary of the Treasury, or the auditor 

in connection with automatic portability 

transactions; or 

(ii) The subject of a foreign or 

domestic criminal conviction: 

(A) Involving or arising out of the 

conduct of the automatic portability 

program or any automatic portability 

transaction; or 

(B) For any felony involving larceny, 

theft, robbery, extortion, forgery, 

counterfeiting, fraudulent concealment, 

embezzlement, fraudulent conversion, 

misappropriation of funds or securities, 

or conspiracy to commit any such 

crimes or a crime in which any of the 

foregoing crimes is an element. 

(d) Website. (1) The automatic 

portability provider shall maintain a 

website which displays: 

(i) A description of all the fees and 

compensation received, directly or 

indirectly, by the automatic portability 

provider for services provided in 

connection with the automatic 

portability transaction; 

(ii) A list of recordkeepers for each 

employer-sponsored retirement plan 

with respect to which the automatic 

portability provider carries out 

automatic portability transactions; and 

(iii) The number of plans and 

participants covered by each 

recordkeeper. 

(2) The website is not required to be 

limited to the information described in 

paragraphs (d)(1)(i) through (iii) of this 

section, and may include other 

information, for example, about the 

automatic portability provider, the 

automatic portability program, or other 

services provided to employersponsored retirement plans or 

individual retirement plans, but the 

automatic portability provider must 

ensure that the information described in 

paragraphs (d)(1)(i) and (ii) of this 

section is displayed in a way that 

clearly sets forth the automatic 

portability transaction fees and 

compensation separately from other fees 

and compensation. 

(e) Limitation on exculpatory 

provisions. The automatic portability 

provider shall not include exculpatory 

provisions in its contracts or 

communications with individuals 

described in paragraph (a)(2)(i) of this 

section disclaiming or limiting the 

automatic portability provider’s liability 

in the event the automatic portability 

provider causes an improper transfer of 

assets in connection with an automatic 

portability transaction. This limitation 

does not prohibit disclaimers for: 

(1) Liability caused by an error, a 

misrepresentation, or misconduct of a 

party independent of the automatic 

portability provider and its affiliates, or 

(2) Damages arising from acts outside 

the control of the automatic portability 

provider. 

(f) Record retention requirements. 

(1)(i) An automatic portability provider 

shall, for not less than 6 years after the 

automatic portability transaction has 

occurred, maintain records sufficient to 

demonstrate compliance with the 

requirements of Code section 4975(f)(12) 

and this regulation. 

(ii) No prohibited transaction will be 

considered to have occurred solely on 

the basis of the unavailability of such 

records if they are lost or destroyed due 

to circumstances beyond the control of 

the automatic portability provider 

before the end of the six-year period. An 

automatic portability provider’s failure 

to maintain the records necessary to 

determine whether the conditions of 

Code section 4975(f)(12) and this 

regulation have been met will result in 

the loss of the relief provided by Code 

section 4975(d)(25) and this regulation 

only for the transaction or transactions 

for which such records are missing or 

have not been maintained. 

(2) The records maintained to 

demonstrate compliance with the 

requirements of Code section 4975(f)(12) 

and this regulation shall be made 

available to any duly authorized 

employee or representative of the 

Department of Labor or the Department 

of the Treasury within 30 calendar days 

of the date of a written request for such 

records by the Department of Labor or 

the Department of the Treasury. 

(g) Definitions. (1) A person or entity 

is an affiliate if, directly or indirectly 

(through one or more intermediaries) it 

controls, is controlled by, or is under 

common control with such person or 

entity; or is an officer, director, or 

employee of, or partner in, such person 

or entity. Unless otherwise specified, an 

affiliate refers to an affiliate of the 

automatic portability provider. 

(2) The term control means the power 

to exercise a controlling influence over 

the management or policies of an entity 

or person other than an individual. 

(3) The term individual retirement 

plan means: 

(A) An individual retirement account 

described in Code section 408(a); and 

(B) An individual retirement annuity 

described in Code section 408(b). 

Signed at Washington, DC, this 16th day of 

January 2024. 

Lisa M. Gomez, 

Assistant Secretary, Employee Benefits 

Security Administration, U.S. Department of 

Labor. 

[FR Doc. 2024–01208 Filed 1–26–24; 8:45 am] 

BILLING CODE 4510–29–P 


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