The original SECURE Act had “retirement enhancement” in the name. With SECURE 2.0 Act of 2022, there are a number of provisions that, if done right, can help participants with many more aspects of their financial lives, according to experts who spoke Wednesday for one of a series of PLANSPONSOR webinar’s on the legislation.
The move by Congress to go into areas such as emergency savings and college debt in some ways mimics the industry, said Kelli Send, senior vice president-participant services, Francis Investment Council. In many conversations her team has with clients, areas of advisement can quickly go beyond workplace retirement plans.
“On a day-to-day basis, we spend more time talking about outside things than we do the 401(k),” according to Send. “The industry has done a phenomenal job automating the 401(k) side … but what about everything else? And that’s where the American public really needs help these days.”
The legislative moves on the table include allowing unused 529 education savings funds to go into a Roth individual retirement account, allowing employers to permit contributions into emergency savings vehicles, and letting employers match student loan payments with company retirement plan matches.
Honing those programs to work for different pools of participants, both by industry players and regulators, will ultimately determine if they are successful, said Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute.
“I don’t think there’s going to be one magic bullet that’s going to help every plan,” Copeland said. “I think some of these things are going to help different workforces better than others, and what we really have to find out is what aspect is helping … and once we get there then I think we can really design plans to be more effective.”
The Rothification of America
One of the biggest mandatory provisions of SECURE 2.0 is that if a person is over age 50 and makes more than $145,000 a year, any catch-up contributions to their retirement plan must be considered a Roth—meaning it will be taxed before going into the account, according to Francis’ Send. What that means, in essence, is that every plan sponsor will have to offer a Roth featurestarting in 2024, and every recordkeeper will have to have the ability to provide it for catch-up contributions.
“If you’re listening to this and you don’t have a Roth provision, it’s really important for you to get to your recordkeeper to have it added, because it will be required,” she said.
Send believes the plan shows that “Congress loves Roth,” in part because the federal government gets the income taxes paid up-front as opposed to waiting for when people are withdrawing from their plans years later. That said, she does see huge benefit for participants.
“I think in general workers should be much more focused on Roth, simply because they’re able to compound their savings completely income tax free, and the younger you are the more powerful that is,” she said.
Another “Rothification” element in SECURE 2.0 is that people who put education savings into a tax-benefitted 529 plan can now send unused money into a Roth that goes to their child. Although it is still subject to Roth rules, it is up to a maximum of $35,000, and will help motivate people to use 529s as part of the more holistic wealth planning, according to Send.
“I think it really eliminates in a large way [any] hesitancy because there is something that they can do with that money, and who wouldn’t want to provide their children a head start toward saving for college as well as a head start to saving for their retirement?” she said.
When research group EBRI does employer surveying around financial wellness, the most talked about topics recently have been student loan debt and emergency savings, according to Copeland.
An emergency savings program, especially post-pandemic, is an important element for many participants, and employers, in terms of feeling that they have a safety net should they need it, without having to tap a workplace retirement account.
“Regardless of the economic situation going on out there, there is still a number of families .[that] live paycheck to paycheck,” he said. “So anytime there’s this unusual expense—car breaks down, or something happens to your home—there’s that need for money.”
Copeland said that while an emergency savings account is similar to a hardship withdrawal from a 401(k), it will be easier to access. While this vehicle is allowed in 2024, Copeland suspects it will take some time for the industry to implement it, so the account may not really start being offered in widescale until 2025.
In terms of student loan debt management, employers have been hoping to incorporate student 401(k) plan matching for some time to help with the large debt load across the U.S., according to researcher Copeland.
“They really want to help people on a more full basis on their finances than just focusing on retirement or on paying down student-loan debt, because it really lets you do both,” he says.
With SECURE 2.0, employers will be able to provide retirement plan contributions that match a participant’s student debt payment. Once the details and regulations are worked out, this should offer employers a way to help participants both pay off debt and build retirement savings, as opposed to having to make that difficult decision for one or the other, he says. The one thing that Copeland hopes the option doesn’t create is a trend toward participants not paying into 401(k) plans at all.
Overall, however, he sees the policy as another way SECURE 2.0 will forward general financial health for participants.
“Employers wanted some definite structure on what they can do for people, and Secure has done that for them,” he said.