Preservation, Portability and Transfer of Accrued Benefits
What this domain tests
Preservation of benefits until retirement, portability of accrued benefits, and the specific transfer routes: on termination of employment, under the Employee Choice Arrangement (ECA), and between accounts.
Preservation
Accrued benefits from mandatory contributions must be preserved until the member reaches 65 or qualifies under a statutory early-withdrawal ground. The trustee holds them, and the member cannot cash them out on changing jobs, emigrating temporarily, or financial hardship, which is not a ground.
Portability and the transfer routes
- On termination of employment, the member may transfer the accrued benefits attributable to the employer's mandatory contributions, together with the member's own, to a scheme of the member's choice, or leave them in the former employer's scheme as a personal account.
- Employee Choice Arrangement: a member may elect once per calendar year to transfer the accrued benefits attributable to the member's own mandatory contributions from the current scheme to another scheme. Employer mandatory contributions cannot be moved under the ECA while the employment continues.
- Transfers between personal accounts, and on ceasing to be an SEP, follow scheme rules and MPFA requirements.
Transfers run trustee to trustee: the member instructs the receiving scheme trustee, who arranges the transfer with the transferring trustee. The member never handles the money, and only permitted fees may be charged for processing an ECA transfer.
Worked example
A member used the ECA in February to move his own mandatory contributions to a lower-cost scheme. In August he wants to switch again after a rival cuts its fee. He cannot: only one ECA transfer is allowed per calendar year. He must wait until January, or, if he leaves his job, use the termination route, which is not subject to the once-a-year limit and can also move the employer's mandatory contributions.
Traps that cost marks
- Thinking the ECA moves the employer's mandatory contributions.
- Believing transfers can be repeated as often as the member wishes.
- Confusing preservation (a duty to hold) with portability (a right to move).
- Assuming a member must transfer on leaving; leaving benefits in place as a personal account is permitted.
- Overlooking that the transfer must be trustee-to-trustee.