New legislation introduced in the Senate in June would allow workers’ 401(k) savings accounts to be automatically rolled over from a previous employer to a new employer.

The Advancing Auto-Portability Act of 2022, was introduced by Senators Tim Scott, R-South Carolina, and Sherrod Brown, D-Ohio in June. The legislation would make it easier to help workers who change jobs frequently increase their retirement savings and consolidate their accounts.

“For too many Americans, the security of retirement savings after a lifetime of hard work is too far out of reach,” Scott said in a press release. “Making it easier for workers to build savings will alleviate stress for families and ensure every person has the opportunity to retire with dignity, regardless of their income or economic status.”

Nearly 40% of workers who left a job withdrew their balances after termination within a 10 year period. Those with balances of less than $1,000 were most likely to cash out due to the auto distribution provisions.  People who take money out before age 59.5 are also subject to a 10% penalty tax in addition to normal income tax.

“The sooner we can make auto-portability the standard for all small, terminated accounts, the better it will be for workers, plan sponsors, service providers and, collectively, the country,” Alison Borland, Alight Solutions wealth and well-being solutions executive vice president, said in the press release.

There have been several bills introduced this year in both houses that are focused on increasing retirement readiness by creating additional protections for workers and businesses.  We expect many of these bills to be consolidated and passed before the end of the year, providing an opportunity to engage current and prospective plan sponsors to improve their plans and on the value of having a plan focused advisor.