Recently, Tim Walberg (R-MI) and Gregorio Kilili Camacho Sablan (D-N. Marianas) proposed the Retirement Plan Modernization Act which would affect terminated employees in full-time employer 401k plans in that the employer could automatically transfer their 401k funds to an IRA (this is known as an automatic IRA rollover) if the balance of their 401k funds is $8,000 or less. The current threshold is $5,000 so this would an increase of $3,000.
Some of the highlights of the pending bill include the following:
The Senators proposing the bill argue that the bill would make it easier for small businesses to offer retirement plans and better manage the administrative expenses of retirement plans. They also say plan fees would decrease becasue the plan would not be required to pay fee for participant accounts where the employee has separated from service.
Under current law, automatic IRA rollovers occur if a participant is no longer employed by the employer sponsoring the retirement plan and their balance is between $1,000 and $5,000. Congress has periodically adjusted the cash-out limit over the years to reflect increasing costs of administration; however, the last time it was updated was 1997. The Retirement Plan Modernization Act would raise the automatic IRA rollover limit, based on the rate of inflation, from $5,000 to $8,000 and allow for future increases to be indexed for inflation.