SECURE 2.0 and the $7,000 Threshold

Summary

SECURE 2.0’s higher $7,000 threshold expands automatic rollover eligibility and increases the importance of prudent Safe Harbor IRA oversight.

Key Takeaways:

The Update: Section 304 of the SECURE 2.0 Act raised the maximum threshold for automatic cash-outs and forced-out rollovers from $5,000 to $7,000.
The Impact: Roughly one-third of all retirement accounts fall below this new $7,000 threshold, significantly increasing the volume of eligible dormant accounts.
The Fiduciary Mandate: RIAs and plan sponsors must actively evaluate Safe Harbor IRA providers on fees, performance, and participant outreach to meet Department of Labor (DOL) standards.
The Solution: Automating force-outs and simplifying voluntary rollovers, clean up plan books, eliminate administrative drag, and mitigate fiduciary exposure.

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The SECURE 2.0 Act introduced a broad set of retirement plan reforms designed to expand access to workplace savings, strengthen participant outcomes, and modernize plan administration. For Registered Investment Advisors (RIAs) and plan sponsors, one of the most operationally significant changes is the expansion of the automatic rollover threshold.

Managing workforce turnover has historically left plans cluttered with small, inactive accounts. Recent industry data shows there are nearly 32 million forgotten 401(k) accounts holding approximately $2.1 trillion in assets. Because roughly one-third of these accounts sit below the $7,000 threshold, optimizing your plan's force-out governance is no longer a background administrative task—it is a fiduciary and financial necessity.

What SECURE 2.0 Changed

Before SECURE 2.0, retirement plans that included a distribution provision were permitted to automatically roll over or cash out terminated participants’ vested account balances of $5,000 or less.

SECURE 2.0 increased that threshold to $7,000, allowing plans with such provisions to automatically roll over or distribute higher small-balance accounts when participants do not make an affirmative election.

Current Automatic Rollover Rules

Account Balance	Typical Treatment
Under $1,000	May generally be distributed in cash in accordance with plan rules.
$1,000–$7,000	May generally be automatically rolled into an IRA if no election is made.
Over $7,000	Generally requires participant direction for distribution or rollover.

The higher threshold allows plan sponsors to remove a larger number of small inactive accounts while preserving retirement assets through rollover treatment.

For RIAs, this expands the scope of accounts impacted by rollover governance, increasing the importance of provider oversight, documentation, and participant experience.

Understanding Automatic Rollovers and Safe Harbor IRAs

An automatic rollover occurs when a retirement plan transfers a terminated participant’s balance into a Safe Harbor IRA after the participant fails to provide distribution instructions.

This process is typically triggered through a plan’s force-out provision, which allows sponsors to distribute small inactive balances after required participant notices are issued.

The automatic rollover framework is designed to:

Preserve retirement savings by preventing unintended cash-outs
Address small or abandoned accounts when participants do not respond
Support compliance during plan terminations, mergers, or similar plan changes
Ensure proper distribution of balances in accordance with required procedures
Reduce ongoing administrative and fiduciary burdens following plan events

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With this foundation in mind, it becomes clear why the expansion of the threshold has meaningful downstream effects for both plan sponsors and their advisors.

Seamlessly offboard small-balances and reduce plan costs

PensionBee works directly with RIAs and plan sponsors to handle the automatic rollover process from end to end, managing participant notices and clearing small accounts.

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Strategic Implications for RIAs and Plan Sponsors

This expanded threshold introduces clear operational shifts across your book of business:

Plan Administration: Dormant accounts can be systematically scrubbed, directly reducing per-participant recordkeeping costs.
Fiduciary Oversight: A larger volume of plan assets will flow into automatic rollover programs, placing a brighter regulatory spotlight on provider selection.
Operational Efficiency: Streamlines human resource workflows during major corporate transactions, such as mergers, acquisitions, or complete plan terminations.

Area	Impact on Advisors and Plan Sponsors
Plan Administration	Fewer dormant accounts remain in the plan.
Participant Retention	Reduced the likelihood of small-balance cash-outs.
Fiduciary Oversight	Greater emphasis on prudent provider selection.
Compliance	Increased importance of notices and documentation.
Operational Efficiency	Streamlined management of terminated participants.

With the higher threshold in place, automatic rollovers may play a more visible role in retirement plan management instead of remaining a background administrative task.

Fiduciary Considerations for Automatic Rollovers

Choosing an automatic rollover IRA provider is a core fiduciary act. The Department of Labor expects RIAs to conduct independent, documented due diligence when selecting these vendors. Because Safe Harbor IRAs default into capital-preservation vehicles, excessive fees can quickly deplete small balances.

PensionBee’s projections indicate that by 2030, up to 13 million accounts worth a combined $43 billion could be swept into Safe Harbor IRAs. If left in high-fee "junk" vehicles, these accounts face material erosion.

Key Provider Evaluation Framework

Evaluation Area	What to Ask
Participant fees	Are fees low enough to avoid material erosion of small balances over time?
Principal preservation	Does the default investment align with Safe Harbor IRA requirements?
Participant outreach	Does the provider actively attempt to locate and re-engage missing participants?
Missing participants or beneficiaries	What happens to accounts that remain unclaimed over extended periods?
Distribution tracking	How is reporting structured for audit readiness and Form 5500 accuracy?
Fiduciary documentation	Does the provider supply records sufficient to support a defensible due diligence process?

Best Practices for RIAs Advising on Automatic Rollovers

Automatic rollovers involve fiduciary responsibility and the protection of participant assets. When they are not properly managed, they can introduce significant legal and compliance risk. These risks can be mitigated by following key best practices:

1. Use a Qualified Safe Harbor IRA Provider

Automatic rollover IRA providers should offer transparent fee schedules, conservative default investment options, and structures designed to comply with DOL safe harbor requirements. Evaluation should consider regulatory compliance history, not just cost alone.

2. Document the Fiduciary Selection Process

Maintain clear, dated records demonstrating how automatic rollover IRA providers were evaluated, compared, and selected. This documentation is your primary defense in the event of a DOL audit or participant complaint.

3. Strengthen Participant Communication Before the Rollover

Timely notices reduce the number of participants who trigger force out 401k distributions inadvertently. Provide multiple contact attempts across channels (mail, email, phone) and document each outreach effort. For M&A events, begin communications as early as possible, before plan changes take effect.

4. Address M&A Complexity Proactively

During mergers and acquisitions, ERISA fiduciary duties require prudent oversight of plan administration, including maintaining accurate plan records, ensuring responsible management of plan processes, and providing required participant communications.

5. Review Plan Design and Force-Out Thresholds Regularly

Confirm that your plan's force-out thresholds, rollover procedures, and default IRA arrangements reflect current DOL regulations and best practices. Periodic reviews can help reduce the risk of non-compliance during unexpected plan events.

6. Review All Fees and Costs

Beyond setup fees, assess ongoing account maintenance charges, investment expense ratios, and any fees charged when participants claim their accounts. High fees on small balances can significantly reduce participant savings and may raise fiduciary concerns.

Putting SECURE 2.0 Into Practice with PensionBee

The operational shift brought by SECURE 2.0 offers a clear opportunity for RIAs to add value: help your plan sponsor clients sweep old, costly accounts off their books.

PensionBee’s IRA solution handles this entire pipeline end-to-end. We facilitate the compliant transfer of terminated participant balances into an IRA structure that prioritizes clear fees, transparent default investments, and active participant re-engagement with our award-winning app and content. By integrating automated force-outs with frictionless voluntary rollover assistance, we clear your administrative drag, reduce overall plan complexity, and support robust ERISA alignment.

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Frequently Asked Questions (FAQs)

How does the automatic rollover process work step-by-step?

Termination: Participant separates from service and becomes eligible for a plan distribution.
Notice: The plan administrator provides required distribution and rollover notices explaining available options and tax consequences.
No Election: Participant does not make an affirmative distribution election within the required notice period (typically at least 30 days after notice is provided, under IRC rollover rules).
Plan Force-Out (if permitted): If allowed under the plan’s terms, the plan may distribute small vested balances (up to the threshold, currently $7,000 under SECURE 2.0).
Automatic Rollover: If eligible for rollover treatment and no election is made, the balance is transferred via trustee-to-trustee transfer into a Safe Harbor IRA established in the participant’s name.

Why do missing participants increase fiduciary exposure for RIAs?

Dormant and missing participants can complicate plan administration by increasing recordkeeping burdens, delaying required distributions, and creating challenges in maintaining accurate census data. Additionally, inaccurate or incomplete participant data can lead to reporting inconsistencies on Form 5500 filings. The Department of Labor expects fiduciaries to maintain reasonable procedures to locate missing participants and to provide required ERISA disclosures, and may cite fiduciary breaches where such processes are inadequate.

What is a Safe Harbor IRA?

A Safe Harbor IRA is an individual retirement account used to receive automatic distributions from retirement plans for terminated employees with small account balances (under $7,000). Under ERISA and SECURE 2.0, plan sponsors have the option to roll these balances into Safe Harbor IRAs rather than distributing them as cash.

How does SECURE 2.0 affect force-out thresholds?

SECURE 2.0 raised the automatic rollover threshold from $5,000 to $7,000, effective for distributions made after December 31, 2023. Plan sponsors and RIAs advising plan sponsor clients should confirm their plan documents and force-out procedures have been updated to reflect the new threshold.

What is a force-out provision and when does it apply?

A force-out provision allows plan sponsors to automatically distribute small retirement account balances when a participant terminates employment, if the plan includes this feature. Generally, force-out rules apply to vested balances between $1,000 and $7,000 when the participant does not make an affirmative election about where the funds should go. Under DOL Reg. 2550.404a-2, those balances may be rolled into a Safe Harbor IRA, while balances under $1,000 may be distributed as cash.

What are automatic rollovers?

Automatic rollovers are transfers of a former employee’s retirement account balance into an IRA or another eligible retirement plan when they leave an employer and don’t actively choose what to do with their funds.

What should RIAs evaluate when selecting a Safe Harbor IRA provider?

Before selecting a Safe Harbor IRA provider, advisors should evaluate and document a comparison of the current plan versus the rollover destination, including fees and expenses, investment options and quality, available services such as advice and reporting, withdrawal flexibility and plan-specific restrictions, and differences in creditor protection between account types. This documentation is widely considered a best practice and helps support the plan sponsor's or advisor's own fiduciary due-diligence process in selecting a provider.

Why does participant offboarding matter in retirement plans?

The offboarding process is a critical moment where participants make decisions about their retirement savings. Poor communication or lack of guidance can lead to cash-outs, resulting in retirement leakage and reduced long-term outcomes.

What are the risks of taking a hands-off approach to plan decisions?

Decisions such as rollover provider selection, force-out thresholds, and plan design features require ongoing monitoring. Failing to revisit these decisions can lead to outdated practices, potentially higher fees, and increased fiduciary exposure.

Disclaimer

Investing involves risk. This post, and any associated customer testimonial or third party endorsement, is provided solely for informational and educational purposes, should not be taken as tax, legal, financial or investment advice and is not an offer, solicitation, or recommendation to buy or sell any securities or investments.

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