A Plan Sponsor's Guide to Managing Retirement Plans: ERISA Fiduciary Duties, Safe Harbor IRAs, and Automatic Rollovers

PensionBee

October 2, 2026

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Updated on:

October 2, 2026

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Summary

A guide to ERISA fiduciary responsibilities, including how automatic rollovers and Safe Harbor IRAs handle terminated employees’ small balances under SECURE 2.0.

Key Takeaways

Under ERISA, an employer can become a fiduciary to plan participants when it sponsors an employee retirement plan, with duties that apply to every participant's account, including those who've left the company.
A former employee's balance remains an employer’s fiduciary responsibility until it's properly rolled over. Termination doesn't necessarily end that duty.
SECURE 2.0 raised the mandatory cash-out and automatic rollover threshold from $5,000 to $7,000, expanding how many former employees' balances can be swept into a Safe Harbor IRA.
A Safe Harbor IRA is an individual retirement account used for automatic rollovers of terminated employees' small plan balances, and it comes with its own fiduciary requirements around fees, investment choice, and participant notice.
Provider relationships, including automatic rollover providers, are subject to the same ongoing, prudent review as any other fiduciary decision, though in practice they're reviewed far less often.

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Sponsoring a retirement plan means managing money and legal responsibility on behalf of employees. ERISA Section 404(a-3) sets the conditions for a fiduciary to satisfy its duties under the Safe Harbor rule.

This guide covers what that responsibility looks like across the life of a plan, from day-to-day administration and provider oversight to compliance and reporting. It also covers a part of the job that often gets less attention: what happens to a participant's account and to a plan sponsor's safe harbor obligations after an employee leaves the company.

ERISA Fiduciary Responsibilities for Plan Sponsors

A plan sponsor is the organization that establishes and maintains a retirement plan on behalf of its employees. That role carries ERISA fiduciary duties, whether they're held by the organization directly or by the specific individuals or committee it designates to run the plan. Those duties apply to every dollar and every participant in the plan, whether currently employed or not. They break down into a few core obligations:

Fiduciary Duty	What It Requires
Duty of Loyalty	Act solely in the interest of participants and beneficiaries, avoiding self-interest and focusing on providing plan benefits while paying only reasonable expenses.
Duty of Prudence	Exercise care, skill, and diligence a prudent person would use in similar circumstances, including both selecting and monitoring investments.
Duty to Diversify Investments	Reduce the risk of large losses by diversifying plan assets, unless non-diversification is clearly prudent.
Duty to Follow Plan Documents	Comply with plan rules, as long as they align with ERISA requirements.

These duties don't end when an employee leaves the company. A former employee's small balance sitting in the plan is still subject to the same fiduciary standards as an active participant's account. The decision to move that balance, including the choice of Safe Harbor IRA provider, is itself a fiduciary act. The plan sponsor can qualify for the safe harbor by transferring small balance accounts into a safe harbor IRA that meets the requirements of the safe harbor law.

Plan Administration and Compliance Essentials

Beyond the duties already covered, plan sponsors are responsible for a recurring set of compliance obligations:

Form 5500 filing: Most plans file annually; plans with 100 or more participants generally require an independent audit, though the participant count is now based on individuals with an actual account balance rather than everyone technically eligible.
Nondiscrimination testing: Plans that don't use a safe harbor design are generally subject to annual nondiscrimination and top-heavy testing.
Participant disclosures: Fee disclosures, summary plan descriptions, and qualified default investment alternative (QDIA) notices are required on a regular cycle.

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Choosing and Monitoring Plan Service Providers

Selecting a recordkeeper, third-party administrator, or automatic rollover provider is a fiduciary decision, which means it calls for the same documented, prudent process used for selecting investment options. Industry benchmarking research suggests recordkeeper and provider relationships have typically been reviewed only once every three to five years. For a fast-changing area like automatic rollovers, that cadence can leave a meaningful gap between when a provider was selected and when its fees, participant experience, and compliance posture were last actually checked.

At minimum, a periodic review should cover:

Compensation changes: Whether the provider has flagged any changes to its compensation or other terms since it was hired, or since the arrangement was last renewed.
Performance: How well the provider is actually delivering on what it agreed to do.
Reports: Whether the reports the provider sends are being read, not just filed away.
Fees charged: What's actually being charged now, not just what was quoted at signing.
Policies and practices: Things like trading activity, investment turnover, and proxy voting.
Participant complaints: Whether any have come in, and whether they were actually followed up on.

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Beyond these general provider checks, one part of the job tends to get the least attention of all. It's what happens to a small balance when an employee leaves, and it's worth walking through on its own.

Safe Harbor IRAs and Automatic Rollovers

When a participant leaves a job without electing what to do with their account, ERISA and the plan document determine what happens next. SECURE 2.0 changed part of that calculus by raising the mandatory cash-out and automatic rollover threshold from $5,000 to $7,000 for distributions made after December 31, 2023:

Account Balance	Common Action
Under $1,000	A check may be issued directly to the participant
$1,000 – $7,000	Can be rolled into a Safe Harbor IRA
Over $7,000	Participant consent is generally required

A Safe Harbor IRA is typically created to meet the requirements of the Safe Harbor rule and can be used to receive these automatic rollovers.

What Are the DOL Requirements for a Safe Harbor IRA?

Under Department of Labor safe harbor rules, a fiduciary can meet its fiduciary duties under the law only if the IRA meets specific conditions, including, but not limited to:

The funds are invested to preserve principal and provide a reasonable rate of return.
Fees don't exceed what's typically charged for comparable IRAs.
The provider is selected using the same prudent process required for any other plan decision.
The participant receives notice explaining what happened and their right to move the funds elsewhere.

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Adoption of the higher $7,000 threshold is optional, not automatic. Plan sponsors who want to use it need to formally amend their plan document.

The practical effect is simple. More terminated participants and larger balances now qualify for automatic rollover than before. A plan's existing rollover provider, often whatever came bundled with the recordkeeper, may be handling more money and more people than it was originally set up for. Plans that haven't reviewed that provider since the threshold changed may be carrying more fiduciary exposure than they realize.

Putting Fiduciary Responsibility Into Practice with PensionBee

Reviewing a plan's automatic rollover provider, and the small balances sitting with it, is one of the more overlooked ways to act on the fiduciary responsibilities covered in this guide. It's also one of the more straightforward places for a plan sponsor to start.

PensionBee's IRA solution handles this entire pipeline end-to-end. We facilitate the compliant transfer of former 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 aim to help you clear your administrative drag, reduce overall plan complexity, and support robust ERISA alignment.

Frequently Asked Questions (FAQs)

What is a Safe Harbor IRA?

A Safe Harbor IRA is an individual retirement account used to receive 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.

What did SECURE 2.0 change about automatic rollovers?

SECURE 2.0 (Section 304) raised the involuntary cash-out limit from $5,000 to $7,000, effective for distributions made after December 31, 2023. This means plan sponsors can now process distributions for terminated participants with vested balances up to $7,000 if they have amended their plans to allow for the higher threshold limit.

Are plan sponsors still fiduciaries for former employees with small account balances?

Yes. Only when the plan has adopted automatic rollover provisions and the force-out is executed in accordance with 29 CFR § 2550.404a-2, the fiduciary is deemed to have satisfied its ERISA § 404(a) duties with respect to both the selection of the IRA provider and the investment of the rolled-over funds.

Is selecting a Safe Harbor IRA provider a one-time decision?

No. While selection is an initial fiduciary step, plan sponsors are also expected to monitor the provider on an ongoing basis to ensure that services remain appropriate and that fees and practices continue to be reasonable.

What is ERISA?

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets standards for most private-sector, employer-sponsored retirement plans. It governs plan structure, oversight, fiduciary duties, and participant protections.

What are the core fiduciary duties under ERISA?

The core fiduciary duties under ERISA are:

‍Duty of Loyalty: Act solely in the interest of participants and beneficiaries, avoiding self-interest and focusing on providing plan benefits while paying only reasonable expenses.‍
Duty of Prudence: Exercise care, skill, and diligence a prudent person would use in similar circumstances, including both selecting and monitoring investments.‍
Duty to Diversify Investments: Reduce the risk of large losses by diversifying plan assets, unless non-diversification is clearly prudent.‍
Duty to Follow Plan Documents: Comply with plan rules, as long as they align with ERISA requirements.

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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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