By Mark Olsen, Managing Director at PlanPILOT
The SECURE 2.0 Act of 2022 was the most comprehensive retirement plan legislation in over 15 years and included both required and optional provisions for individual retirement accounts and employer-sponsored retirement plans. Due to the complexity of the legislation (with approximately 92 new provisions and delayed IRS guidance on specific aspects), plan sponsors have been somewhat slow to upgrade their employee benefit programs to reflect the new regulations.
In our consultations with plan sponsors, one area where we observe many instances of omission is inclusion of the “optional provisions” of the SECURE 2.0 regulations. These include:
- Disaster relief distribution options and more lenient tax treatment
- Employer matching contributions based upon student loan payments
- Designating employer contributions as post-tax Roth contributions
- Penalty-free distributions for victims of domestic abuse
- Self-certification for distributions due to hardship withdrawal requests
- A $1,000 withdrawal option for personal emergencies
- Pension-lined emergency savings accounts up to $2,500
Observations of Early Adoption by Employers
In the two years since the SECURE 2.0 was signed into law, some of these optional provisions have been readily implemented by plan sponsors. These include the hardship withdrawal self-certification provision, the allowance for domestic abuse withdrawals, and the retirement account force-out provision (for accounts less than $7,000). The withdrawal provisions appear to be administratively simpler to implement and the popularity of the account force-out provision could be a cost-savings move for plan sponsors. Non-profits have been particularly receptive to implementing distribution provisions in the event of natural disasters or terminal illness. Many of these early adoptions suggest that financial wellness solutions continue to be a top priority of plan sponsors.
Understandably, most plan sponsors have been receptive to implementing provisions that only require small adjustments (such as the expanded “catch-up” provisions within DC plans for those of ages 60-63) with little additional administrative or technology upgrade expense.
Other Provisions Are Slow to Gain Traction or Interest
Even though several of these additional features have been welcomed and implemented, others haven’t experienced much enthusiasm from plan sponsors. For employers, this reluctance has been primarily due to: a) a lack of available technology to adopt many of these optional features and, b) uncertainty about how the different provisions should be administered.
As an example, the student loan matching provision (where an employer’s matching contribution is based upon the participant’s payment toward their educational loans instead of their payroll deferral contribution) has garnered little interest from employers, though there has been enthusiastic interest from participants. This is apparently due to employer concern over fraud (due to the self-certification criteria) and the difficulty of accessing loan information from the U.S. Dept of Education. Sponsors also cited administrative hurdles to including other features, such as the emergency savings account provision.
Legal uncertainty and the lack of guidance on the effects or fiduciary risk exposure that accompany inclusion of some provisions seems to be holding back many plan sponsors. These include the saver’s match contribution, the employer-match-to-Roth feature, the emergency savings provision, and the student loan match.
In particular, the employer-match-to-Roth provision had initially generated a great deal of excitement that quickly fizzled as employers expressed doubts and uneasiness around delving into this uncharted territory, especially without legal guidance. Even now, plan sponsors need to be sure their payroll service vendors or record-keeper companies have the administrative tools and capacity to track and designate these different fund classifications.
More Additions Possible With Greater Guidance
Interestingly, plan sponsors appear open to enhancing their programs for employees, and adding more of the options provided by SECURE 2.0, as long as their concerns were addressed and solutions were provided. As an example, more than half of plan sponsors surveyed expressed interest in providing a “lifetime income” feature (aka annuities) in their retirement plan, but cited fiduciary risk, administrative difficulties, and participant utilization as significant concerns, and wished to wait to see how the marketplace evolves for this type of commitment.
Does Your Benefit Program Measure Up?
PlanPILOT is uniquely positioned to help employers customize and design benefit plans that meet your unique needs and objectives. Our mission is to deliver comprehensive advisory services that help plan sponsors meet and exceed their fiduciary responsibilities by providing the proper risk management solutions and independent advice they need.
If you’re ready to upgrade to a new standard for your benefit planning, reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.