New House bill brings ‘simplification and clarity’ to retirement plan rollovers

“As Americans prepare for retirement, they deserve clear, concise guidance and flexible options to make the most of their hard-earned savings,” said Rep. Panetta.  “This bipartisan legislation would provide older Americans with a more simplified process and flexibility to choose savings options that are right for them.  By allowing individuals to make informed decisions about their retirement plans we can better ensure their financial security in the years ahead.”

“I am proud to lead this bipartisan effort with Representative Panetta to help eliminate needless hurdles and reduce the confusion surrounding retirement,” said Rep. LaHood.  “Hardworking Americans planning for retirement shouldn’t be burdened with complications that only create uncertainty about their financial future.  Providing more flexibility and a better understanding of the process will help ensure Americans are more secure and better prepared for their retirement.”

Specifically, the Retirement Simplification and Clarity Act would implement recommendations from the Government Accountability Office (GAO) to reform the complex 402(f) Tax Notice process. A 402(f) Notice is a document provided by plan administrators to employees leaving an employer and seeking a distribution from their 401(k) plans, which explains that their retirement plan is eligible to be rolled over to an IRA or an employer plan.

SECURE 2.0 included a provision for the GAO to analyze the 402(f) Notice. As a result, the GAO interviewed officials from DOL, Treasury, and the Internal Revenue Service; reviewed agency documentation, including available guidance and federal regulations, related to the rollover process. GAO also conducted a nationally representative survey of 401(k) participants who, within the last 3 years, completed a rollover of their savings to another 401(k) plan or who were eligible but did not complete a plan-to-plan rollover.

The bill directs the IRS to redesign the notice using plain and concise language. The updated notice will include clear explanations of all distribution options, including rolling over savings into a new plan or retaining them in the current plan, ensuring individuals have the necessary information to make informed choices.  Additionally, the bill would expand in-service rollover options by allowing individuals aged 50+ to roll over their employee-sponsored 401(k) savings into an annuity. 
According to the GAO’s report, Information regarding retirement plan distribution and rollover options after leaving a job is too scarce and too slow.

“This report is just one of many provisions in SECURE 2.0 which show that Congress recognizes some of retirement plan participants’ needs,” American Retirement Association Chief Legal Officer Allison Wielobob said.

“The GAO was tasked with examining the effectiveness of 402(f) notices in SECURE 2.0,” said American Retirement Association Chief Legal Officer Allison Wielobob.”‘402(f) information’ is really important for anyone embarking on a job change and in other situations.  And we support the idea of a critical look about how communications to participants can be improved.”
The Retirement Simplification and Clarity Act is supported by financial planning experts and organizations advocating for retirement security.

“Many Americans are concerned that their savings will not last throughout retirement.  Annuities allow retirement savers to replicate a traditional pension plan’s guaranteed lifetime income stream,” said David Chavern, President and CEO of the American Council of Life Insurers, a Washington, D.C.-based trade association.  “This important legislation will help Americans nearing retirement access annuity products they need to provide for a secure financial future.”