ERISA

Moving a 401(k) Between Jobs is About to get Simpler

06.18.2019

A proposed exemption by the U.S. Department of Labor to the Employee Retirement Income Security Act of 1974 (ERISA) designed to allow easier transfer of a 401(k) from one job to another is expected to be finalized this summer. The exemption is designed to reduce the amount of money withdrawn from retirement accounts before they retire. Most of this “leakage” occurs when employees switch jobs–they withdraw the money in order to figure out what to do about their retirement accounts from their old jobs. With this exemption, that will not be a problem; the transfer is to the new job’s 401(k) will be automatic.

Currently, for accounts totaling under $1,000, a former employer may cut the former employee a check for their 401(k) amount while if the account totals under $5,000, it may be converted into an IRA. Often, employers do neither and just let the account sit there. Employees have the ability to cash out with a withdrawal penalty when they move jobs. Employees also have the ability to rollover their 401(k) into an IRA. All of these options require action by the employer or employee to understand what happens when an employee changes jobs.

With this proposed change, employers will automatically roll over 401(k) money to IRA when an employee leaves a job and that will be transferred automatically to a 401(k) at the employee’s new job. The money stays in the IRA if the new employer does not offer a 401(k) or a new job is not found.

Plan sponsors still will be required to obtain an ERISA fidelity bond in order to protect the plan and plan beneficiaries and should purchase fiduciary liability insurance in order to protect from any fiduciary breaches resulting from this new rule.

How can you protect your 401(k) plan and plan beneficiaries?

While the ERISA fidelity bond is required to protect the participants of the plan, it does not, however, protect YOU and your company as the fiduciary.

Colonial Surety Company is a Treasury Listed surety company providing ERISA fidelity bonds packaged with fiduciary liability insurance and cyber liability insurance. Colonial is one of the leading providers of ERISA related products, offering bonds approved by the Dept. of Labor. We make it easy to obtain your bond instantly as well as allowing you to purchase retroactive insurance for the years the plan was not previously covered.

Under ERISA, fiduciaries may be held personally liable for breaches of their responsibilities in the administration or handling of employee benefit plans. Under ERISA 410, the plan cannot relieve you of this responsibility with indemnification language, however, it specifically permits persons with personal liability to purchase Fiduciary Liability Insurance. Covering yourself with Fiduciary Liability Insurance gives you peace of mind that you are protected. Learn how to bundle your ERISA bond and fiduciary liability insurance and cyber liability insurance for a discounted rate.

Colonial’s cyber insurance provides a services-based solution to help plan sponsors manage data breaches successfully. These services include a dedicated team of cyber breach professionals who assist plan sponsors at every stage of incident investigation and breach response. These professionals coordinate the carefully vetted forensics experts and specialized lawyers to help plan sponsors establish what’s been compromised; assess plan sponsor responsibility; and, notify those individuals affected. In addition, these services will also coordinate credit or identity monitoring, and PR advice to help the plan sponsor safeguard its reputation. Of course, Colonial’s cyber insurance also indemnifies and defends plan sponsors from covered lawsuits or regulatory actions, the risk of which may be reduced by a well-coordinated breach response, but can never be completely eliminated.

If you would like to learn more about purchasing an ERISA fidelity bond, or an ERISA fidelity bond package including fiduciary liability insurance or cyber liability insurance, call 877.650.9661 or email ERISADept@colonialsurety.com. Learn more about becoming a Pension Professional Partner here.