As the retirement industry works to digest the massive SECURE 2.0 legislation, more clarity is surfacing about compliance issues and implementation timelines. Not to be lost in the sauce are a variety of optional provisions. Some become effective in 2024. Experts encourage sponsors to carefully review options and implementation plans.
What Options Will Benefit Participants?
While of course the mandatory provisions and timelines detailed in the SECURE 2.0 Act require attention, experts encourage employers not to overlook the options SECURE 2.0 also provides for plan improvement. Reporting for Plan Sponsor, Beth Braverman underscores that decisions about adjustments need to be made thoughtfully, with a focus on participant needs, and notes:
A handful of optional provisions…go into effect next year, but employers can take their time evaluating if these make sense for their plan and the best way to implement them. These include:
- Self-certification for emergency saving withdrawals of up to $1,000 per year and for domestic abuse withdrawals (penalty-free);
- Employer contributions to a retirement account matching employee student loan payments;
- After separation, employers can roll over participant balances of $1,000 to $7,000 into an Individual Retirement Account;
- Introduction of automatic portability of accounts; and
- Automatic deposits into an emergency savings account, up to 3% of salary for a total contribution of $2,500.
The disruption and rapid pace of change over the last few years make it likely that plan participant needs and priorities have shifted. When considering the options available under SECURE 2.0, plan sponsors have the chance to move thoughtfully into improvements that respond to participant interests. In partnership with committees and service providers, sponsors are encouraged to explore how the new options could strengthen the plan. Toward that end, pointers from experts include:
“This is a great opportunity for committee members to take a step back and ask whether their plan is the way the that they want it to look,” says Dawn McPherson…at CAPTRUST. “Start with those internal conversations about employee needs, and what are the changes that you have been wanting to take action on?” McPherson suggests that plan sponsors and their advisers make a plan for which optional parts of SECURE 2.0 they want to prioritize and then start talking to their providers….
“It’s important that plan sponsors and their advisers work closely with their recordkeepers and providers to identify new features that might work well for their plan and a course of action for adopting them,” says Catherine Collinson…of the Transamerica Center for Retirement Studies in Cedar Rapids, Iowa. “Plan sponsors should inquire about the cost implications of any new compliance requirements or adoption of new features, as well as the ongoing costs.”
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Fast Forward: Must Do’s
While pondering the optional provisions of SECURE 2.0, plan sponsors cannot lose sight of mandatory changes—and the timing for some of those shifts is fast approaching, as Plan Sponsor points out:
The biggest mandatory change for 2024 is a new requirement that catch-up contributions by high-income earners (50-year-olds making $145,000 or more) must be made into a Roth account. That means that those plan sponsors who do not currently offer a Roth to employees must either eliminate their catch-up provision or put a Roth option in place, at least for high earners.
Looking ahead to 2025, one of the most important mandatory provisions employers will need to prepare for is providing plan coverage to long-term, part-time (LTPT) workers. While employers can begin thinking about it now, more guidance is needed, specifically in how to determine eligibility for workers whose hours vary from year to year.
Given the variety of shifts now in motion, attorneys are particularly worried about how plan sponsors will juggle the “voluminous changes” and differing effective dates that are bundled into SECURE 2.0—especially given the absence of sufficient implementation guidance. Further clarification from the Department of Labor is eagerly anticipated. Meanwhile, securing protection against errors is a priority for plan sponsors. Obtain efficient and effective coverage for yourself in minutes today:
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