There is widespread consensus that the SECURE 2.0 Act of 2022 will boost small retirement plan coverage in the U.S. in coming years. But it will also require additional clarity from regulators and adviser engagement for smaller businesses to successfully implement the many mandates and incentives, according to experts speaking at the PLANADVISER webinar, New Plan Creation Under SECURE 2.0.
“SECURE 2.0 is really two-fold,” Barbara Delaney, a principal in StoneStreet Renaissance Advisors, a division of Hub International, said during the April 5 webinar. “It’s coverage. But then there are a lot of provisions that plan sponsors need to think about and need to do, and then you have all the logistical questions that go along with how do we do this today, and get it done with our recordkeeper and payroll company.”
There are a number of incentives in SECURE 2.0 for smaller businesses to bring on retirement plans, noted Jodi Epstein, partner, Ivins, Phillips & Barker. Before SECURE 2.0, for example, small businesses of 50 or fewer employees had a three-year tax credit for creating a new plan equal to 50% of administrative costs up to a cap of $5,000, Epstein noted. With the new law, that credit was increased to 100% of administrative costs. SECURE 2.0 also clarified that the credit can be applied to employers joining a multiple employer plan or a pooled employer plan, further incentivizing small employers to offer workplace retirement benefits, Epstein said.
Epstein, who works with plan sponsors on plan implementation, said the legislation is well-intentioned in terms of both creating new plans and nudging participants to save. There are, however, many areas that need clarity from regulators, she said. These include areas such as how to define a “new plan” as opposed to one that is changing or expanding; the need for all plans to add both auto enrollment and auto escalation, the latter of which is less common for many plans; and how to track and determine what part-time workers qualify for a retirement plan when their hours may change from year to year.
“There are all these pieces to pull more people into plans and get them to save more once they’re in there,” Epstein said. “We’re telling clients, ‘Let’s wait and see more guidance,’ because you don’t want to trip over yourselves and get the reporting wrong or the logistics wrong.”
Steve Scott, a partner in Retirement Solution Group, said his firm is telling clients it is important for them to know about what is in SECURE 2.0, but they need to be patient in terms of implementation.
“There’s no possible way that most people can make informed business decisions today, because there’s too much uncertainty and too many unknowns,” he said.
Scott used the example of a restaurant group with five restaurants and 300 employees. In a business like that, which generally has high turnover rates, managing a retirement plan can be an administrative—and costly—burden. “It’s all going to come down to making sure you that you have the proper level of consultative support, because you’re going to need to make more decisions, one way or the other, in the coming years,” he said.
From Idea to Reality
Delaney said some of her clients who love certain provisions are calling to see if they can implement them immediately. It’s not as easy as it seems, however, even when it comes to seemingly easy options, such as a post-tax Roth savings option for retirement plan catch-up contributions, Delaney noted.
“How are the recordkeepers going to create new buckets, code new buckets, get it right, coupled with payroll?” she asked. “These provisions were enacted on December 29 and then put into law three days later. … The recordkeepers have a huge task in front of them, and it’s going to be a daunting task to build all these things and all the buckets that we are going to be creating.”
Those new buckets include things such as emergency savings options for employees and providing company matching in retirement plans when employees pay off student loan debt. Delaney said her firm is keeping a list of what payroll providers and recordkeepers are doing, so they can inform clients of relevant developments.
Epstein noted that the challenge is not just about the implementation, but also the tracking and administration of new programs. Long-term, part-time employees can be a particular challenge, as employees’ hours may change over the years, Epstein said. If a plan sponsor has two different tracks for full-time and long-term, part-time employees, that can be a challenge to manage.
“There are all these questions about toggling back and forth,” she said. “Those are some of the things we are waiting for from the Treasury and IRS.”
Paying for It
In the immediate term, many current or future plan sponsors are asking about implementing Roth options, Epstein said. All retirement plans will need to add a Roth option by 2024, she noted, because catch-up contributions for people who earn at least $145,000 in 2023 must be made as Roth contributions in 2024.
“If you have catch-up features, you’re probably not going to take those away. So you need to add the Roth bucket, which means you are going to add it for all types of contributions,” Epstein said. “Adding this complexity maybe you didn’t want as an employer … that’s a conversation certainly going on now.”
Scott, who said he supports Roth savings, also notes that the push for the post-tax contribution by the government is a federal budget accounting device to get revenue from taxpayers on the front end to fund incentive programs.
“The government obviously wants to be moving the needle, and you have to,” he said. “But they tend to focus on larger companies who have lobbyists and who get their ear … but the small business community has a very different reality.”
Assisting these businesses with decisions ranging from emergency savings to student loan matching to the basic administration of tracking hourly workers will all require adviser focus, Scott said.
“When we go to roll out a lot of these provisions, a lot more support is going to be needed from our community on how to guide people through smart business decisions and know that every client has a different infrastructure on how to support these benefit programs,” he said.
Scott equated implementing SECURE 2.0 to training for a marathon.
“When you want to run a marathon, you first have to go for that first few-mile run, and when you first start doing it, it’s terrible, but as you keep doing it, it eventually becomes the new norm,” he said. “I think eventually this will all become our new norm … but the transition, I believe, will be difficult.”