Secure Act 2.0 and state mandates change retirement planning

It is a great time to be a retirement plan advisor because business owners and their teams need your help more than ever. The explosion of workplace savings plans resulting from the intersection of state mandates to offer plans and Secure Act tax credits to offset the costs of new plan establishment creates opportunities for engagement.

Retirement plan design dominates the NAPA 401(k) Summit

Of the twenty distinct sessions at this year’s summit, we estimate more than half were dedicated to plan design. These included sessions on:

• Third-party administrator usage
• Financial wellness
• Managed accounts
• SECURE Act 2.0 provisions
• Retirement income

The SECURE and SECURE 2.0 Acts mark two pieces of major retirement legislation in three years. Now that the legislation has passed, it’s time to dig into the details.

Secure Act 2.0 and state-mandated retirement plans

The intersection of state mandates to offer workplace savings plans with the provisions of the SECURE Act and SECURE Act 2.0 make now a perfect time to review existing 401(k)s and help businesses establish new plans. The SECURE provisions ensure newly adopted plans will have modern design best practices such as auto enrollment and auto escalation. Previously adopted plans must be reviewed to ensure their design features keep up with the modern design features facilitated by the SECURE Acts. There is a clear need for these reforms to help more Americans participate in workplace savings plans.

Percent of private industry and state and local government workers with access to and participating in employer-provided retirement plans by type of plan, March 2022

Source: U.S. Bureau of Labor Statistics.

Forty-five states¹ have legislative action or already adopted workplace savings plans mandates. Now is a great time for advisors to ask their business owner clients, “How do you plan to deal with these state workplace savings programs that are sweeping the country?” Every business owner will need to consider modernizing their existing plan to keep it competitive or putting a plan in place.

State mandated retirement savings map

Updated as of August 2022 by AARP PPI.

Sources: AARP PPI, CalSavers, IL Secure Choice, and OregonSaves.

Unintended consequences for defined contribution plans

Since the tax credits in the SECURE Acts cover some, if not all, of the startup costs of private sector 401(k) and 403(b) plans, anecdotal reports from major recordkeepers indicate large numbers of private sector defined contribution plans are being established. It appears when businesses choose between paying a non-adoption penalty, using a state-facilitated savings plan, or establishing a private sector 401(k), the private sector 401(k) option is being chosen often. Many industry leaders did not expect this outcome, but now they expect it to continue.

The SECURE Acts are also facilitating many engagements between small/medium business owners and their advisors. Business owners need guidance from their advisors now more than ever. Now is the time to engage.

Looking ahead

In a little over three years, Transamerica projects the number of businesses with fewer than 100 employees who offer a defined contribution plan will nearly double from 46% to 88%.² This is a trifecta of a massive increase in plans, participants, and payroll savings into the American economy. Even though auto-IRAs remain a state-by-state endeavor, the passage of the SECURE Acts has the potential to create hundreds of thousands of new plans, tens of millions of new savers, and trillions of dollars of savings over the next 10 years.

Next steps for retirement plan advisors

• Engage with all existing business owner clients
• Prospect non-business owner clients
• Help existing plans modernize their designs

To learn more about Putnam resources to help you take advantage of this opportunity, visit our VisualizerSuite.

---

1 https://cri.georgetown.edu/states/

2 https://www.planadviser.com/experts-predict-major-growth-retirement-coverage-benefits/

---

---

333660

More in: Fixed income, Retirement,