SECURE Act 2.0: Seven considerations for retirement plan sponsors

SECURE Act 2.0: Seven considerations for retirement plan sponsors

The passing of SECURE Act 2.0 marks the second piece of major retirement plan legislation in three years.

SECURE Act 2.0 provides incremental improvement to retirement savings. As the industry strives to expand coverage and build on the success of automatic features, there is much to like in this law.

#1 Automatic enrollment mandatory for all new plans.
Opportunity Ask plan clients and prospects, how well is your plan taking advantage of auto enrollment? Help sponsors understand their plan may be at a competitive disadvantage by not using auto enrollment.
Provision Section 101 requires 401(k) and 403(b) plans for plan years beginning after December 31, 2024, to automatically enroll participants once they are eligible (employees may opt out of coverage).
#2 Startup credits — 100% of administrative costs.
Opportunity With state-level mandates to offer workplace retirement savings impacting small businesses in more than a dozen states (including heavily populated California, New York, and Illinois), now is the time to be up to date on the rules in the states where you do business.

Armed with that knowledge, ask small businesses in states with mandates, “how do you plan to follow your state’s requirement to offer a retirement plan?” Creating relationships with small-business owners may lead to additional wealth management opportunities. This provision creates a sense of urgency and offers advisors the chance to help small businesses create new plans at no cost (subject to qualifications).

Provision Section 102 offers a three-year small-business startup credit that is currently 50% of administrative costs, up to an annual cap of $5,000. For 2023 and beyond, Section 102 increases the startup credit from 50% to 100% for employers with up to 50 employees. The provision is effective beginning in tax year 2023.
#3 403(b)s can join MEPs and PEPs
Opportunity Did you know your clients may be serving on boards of organizations that offer 403(b)s? Find out by using networking tools like LinkedIn. Then, ask your client how the plan sponsor wants to take advantage of the new group plan opportunity. At minimum, you have the chance to provide education on this new opportunity while investigating how happy the sponsor is with their current RPS. For RPSs who also focus on wealth business or wealth referrals, explaining this new provision to the sponsor’s board may lead to wealth referral opportunities.
Provision Effective in tax year 2023, Section 106 allows 403(b) plans, which are generally sponsored by charities, educational institutions, and nonprofits, to participate in MEPs and PEPs.
#4 Employer matching for student loan repayment
Opportunity Given the prevalence of student loan debt held by workers who are simultaneously battling inflation, this provision may prove popular with both workers and employers. Help employers understand that money contributed toward student loan payments will be treated the same as employee payroll savings contributions for match calculation purposes beginning with plan year 2024.
Provision Section 110 allows employees with student debt to receive employer matching contributions by using student loan repayment as a qualification for company matching contributions. Section 110 is effective for plan years beginning after December 31, 2023.
#5 Financial incentives for employee participation
Opportunity With current plan clients or prospects, this provision provides an opportunity to target plans with less-than-desired participation rates. Whether for group education or to encourage a one-on-one coaching session, consider ways your plan sponsors can use this new rule.
Provision Section 113, effective immediately, enables employers to offer de minimis financial incentives not paid for with plan assets, such as low-dollar gift cards, to boost employee participation in workplace retirement plans.
#6 Starter 401(k) plans/safe harbor 403(b)s
Opportunity Combined with the plan startup credit (Section 102), this provision provides an opportunity to meet with employers who do not have a plan. Explaining this “on ramp” to the power of workplace savings may help RPSs to develop business owner relationships. Examining your book for small business owners/decision makers who do not yet offer a plan is a good place to start.
Provision Section 121 permits an employer that does not sponsor a retirement plan to offer a Starter 401(k) plan (or safe harbor 403(b) plan). These plans generally require that all employees be default enrolled in the plan at a deferral rate of 3%–15% of compensation. This provision is effective beginning with the 2024 plan year.
#7 Participant purchases of QLACs
Opportunity Although this provision is a participant-level provision and goes into effect without action from the sponsor, RPSs can use this item to start a retirement income conversation. This discussion could allow RPSs to examine how the sponsor defines “success” for their plan, and to ensure the definition of success is based on outcomes.
Provision Section 202 allows up to $200,000 (indexed) to be used from a participant account balance to purchase a QLAC. Section 202 is effective for contracts purchased or received in an exchange on the date of enactment of this Act, and the Treasury Secretary must update the relevant regulations within 18 months of the date of enactment of this Act.

As you continue to improve your retirement plan practice in the new year and beyond, your Putnam Defined Contribution team is ready to partner with you.

As an example of our commitment to partnership, use our PlanVisualizer™ tool as a resource to see how various SECURE Act 2.0 provisions may impact employer-level plan matching costs.


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