PLANSPONSOR - December 2018/January 2019 - 57

SAXON ANGLE
Portability Clarified
DOL issues welcome guidance on RCH services
O
n this recent November 5, the Department of Labor (DOL)
issued an advisory opinion to Retirement Clearinghouse
LLC (RCH) concerning its automatic portability program.
This guidance, which may be one of the few advisory opinions
the DOL will have issued in 2018, clarifies several important
questions about the fiduciary implications for plan sponsors and
service providers in using auto-portability services.
RCH's program is intended to address the substantial
problem of " leakage " of assets from the individual account
defined contribution (DC) retirement system in the U.S., the goal
further being to improve overall asset allocation and eliminate
duplicative fees for small retirement savings accounts through
account consolidation. The accounts that can be consolidated are:
1) balances held in a safe harbor individual retirement account
(IRA), and 2) balances in the plan of a prior employer that are
eligible for mandatory distribution.
In each case, the safe harbor IRA or prior plan account will
be consolidated with the 401(k), or similar plan, of the participant's
new employer. The program will be made available to
plan sponsors through RCH directly and as a service provided by
plan recordkeepers. The program performs periodic queries of
participating recordkeepers' systems to determine whether any
participants or IRA owners have joined a new plan.
RCH will issue a series of notices to eligible participants
describing the program and permitting them to opt out of the
asset consolidation feature. If a participant or IRA holder fails
to opt out in response to these notices, his assets will be transferred
to his new employer's plan.
Fiduciary Implications Addressed
The DOL's November guidance provides much welcome comfort
on several fiduciary aspects of using auto-portability services.
First, unsurprisingly, it reiterates that the selection of an autoportability
service is a fiduciary act and, therefore, like the retention
of any other plan service or provider, requires the sponsor
to be prudent in the initial selection and ongoing monitoring.
The guidance also explains that plan fiduciaries may
evaluate the program's success by analyzing its fees within
the context of successful matches and account consolidations
achieved. Second, it helpfully confirms that the sponsor of a plan
from which an individual's account has been distributed will
not act as a fiduciary in connection with the decision to transfer
that person's safe harbor IRA to his new employer's plan. Once a
benefit is distributed to a safe harbor IRA, the person is no longer
characterized as a plan participant and the distributed funds are
not plan assets under the Employee Retirement Income Security
Act (ERISA). Therefore, while a plan sponsor is a fiduciary in
connection with the decision to transfer assets to a safe harbor
IRA, the responsibility ends here.
The DOL's Novel Interpretation
While the RCH advisory opinion provides welcome clarity to plan
sponsors, it is not without blemishes. Notably, the DOL takes the
position that-absent affirmative consent of an IRA owner to
the transfer-under the circumstances described, RCH will act
as a fiduciary within the meaning of the Internal Revenue Code
(IRC) in deciding to transfer the person's IRA to his new employer's
plan. Similarly, in instances where RCH is partnering with
a third-party recordkeeper, RCH would act as a fiduciary under
the IRC to direct the recordkeeper with respect to disposition of
the IRA holder's assets.
These surprising and seemingly novel views on negative
consent are at odds with previous DOL guidance-and longstanding
industry understanding. The department appears of
the view that there are distinctions between the use of negative
consent on an individual versus on a non-person entity such as a
sponsor or trustee. We strongly disagree with this position.
In this regard, the DOL's own authority does not distinguish
between individual participants, beneficiaries and other
persons-e.g., individuals representing plan sponsors, trustees or
fiduciaries-in terms of capacity to understand and respond, or
choice not to respond, to a negative consent notice. The department's
concern over the use of negative consent with individual
participants and beneficiaries is also inconsistent with even its
recent positions and the guidance issued under the fiduciary rule.
Taking everything into account, the use of technologies
such as auto-portability will have a positive, long-term impact
on the U.S. retirement system by reducing leakage and enabling
American workers to consolidate their small retirement account
balances on an efficient basis.
Stephen Saxon is a partner with Groom Law Group,
Chartered, in Washington, D.C. George Sepsakos is an
associate with Groom.
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