The sheer size of the Secure 2.0 ACT OF 2022, which has more than 90 provisions impacting workplace retirement plans, can make compliance feel overwhelming for many plan sponsors. But those provisions go into effect over a 10-year period, and most of them are optional, rather than mandatory, so the task of updating plan design to comply may be more manageable than they expect.
“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, CEO and president 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.”
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.
On a practical level, industry experts say that most sponsors are choosing the latter, opting to make a Roth available for all participants.
“I don’t imagine that many recordkeepers are going to be thrilled at the idea of just building out a Roth program just for catch-ups,” says Elizabeth Dold, a principal in Groom Law Group. “I anticipate they will strongly encourage folks to adopt the Roth 401(k) feature first.”
Other mandatory changes that plans must put in place for next year center around required minimum distributions:
- Surviving spouses can elect to be treated as their deceased partner for the purposes of RMDs.
- There is no longer an RMD requirement for living participants in employer-based Roth plans
Plan sponsors and advisers should be speaking now with their recordkeepers now to find out what they are doing to keep plans compliant for 2024—and what new features or options might be available to them as more optional provisions come into effect over the next few years.
“Plan sponsors can ask recordkeepers for a summary of the SECURE Act 2.0 provisions that will affect their plan and what the recordkeepers’ plan of actions is to address them,” says Chad Parks, founder of Ubiquity Retirement + Savings, a 401(k) provider specializing in small businesses. “It could be as simple as a one-pager, but as a plan sponsor, you have the fiduciary responsibility to make sure you’re complying with all of the laws.”
Amy Vaillancourt, senior vice president for workplace architecture at Voya Financial in Windsor, Connecticut, says her company is regularly having such conversations with plan sponsor clients about how and when they’re planning to update their system.
“There’s a focus, first on those things that are mandatory, but I believe that as we get into 2024, people’s attention will turn more toward things like emergency savings and the things that are a little bit more financial wellness-type things,” Vaillancourt says.
In addition to connecting with their recordkeepers, plan sponsors likely also need to be thinking about how to update communication with participants to make them aware of changes.
There are also a handful of optional provisions that will 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.
“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, director of retirement plan consulting 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 this summer to put a timeline in place for implementation.
“Talk to your recordkeeper; if you have a third-party administrator, talk to them,” she says. “Your payroll provider will be key, and outside counsel will be critical at various stages, too.”
Even plan sponsors who want to put these provisions in place as soon as possible may need to wait to see if recordkeepers have built out the new products and systems required. In some cases, plan sponsors and recordkeepers are also waiting for guidance on administration and execution from the Department of Labor.
“There are so many questions that plan sponsors can start asking to make their providers aware that they are even interested in the optional provisions,” McPherson says. “Then they need to find out what their recordkeepers are doing to prepare.”
Already, some plan sponsors are having to weigh some of the knock-on effects of implementing optional initiatives. For example, a 2023 optional provision allowed plan sponsors to start making their employer matching or non-elective contributions into a Roth. However, taking advantage of this meant not only that they had to have a Roth option in their plan, but also that they needed to make the contributions vest immediately, given the tax treatment of the Roth.
“It causes plan sponsors to make sure that the changes have been made to eliminate the vesting structure or to look at the structure around the availability of Roth matching and nonelective contributions in a way that allows for it,” says Rob Woytassek, Alerus’ director of retirement and benefits. “Some of the talk I’ve heard is that plan sponsors or recordkeepers might look at it as the participant needs to meet the plan’s vesting schedule before they can have the contributions in a Roth.”
Coordinating With Providers
Many of the updates required for these provisions build on the core provisions that recordkeepers already have in place, says Vaillancourt, so she does not expect much of an impact on pricing. But the impact on payroll may be larger than that of other recent legislation, she adds.
“Absent the cost piece, the coordination between the employer, the adviser, the recordkeeper and the payroll company is going to need to be very aligned,” Vaillancourt says.
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.
Plan sponsors who do alter their plan design as a result of SECURE 2.0 have some breathing room as far as updating plan documents to reflect the changes.
“You don’t need to worry about plan amendments yet,” Groom’s Dold says. “Amendments aren’t needed until 2025. But we need to be in operational compliance, either immediately if the change is in effect this year, or if it’s a change for next year, that’s fast approaching.”