SECURE 2.0: Provisions Pose Varying Degrees of Challenges/Benefits

July 2023

Nearly midway through 2023, companies have formed and are likely to have begun executing on their plans to implement various parts of SECURE 2.0, the eagerly anticipated follow-up to 2019’s Setting Every Community Up for Retirement Enhancement (SECURE) 1.0. SECURE 2.0 is a collection of provisions designed to improve Americans’ access to workplace-sponsored retirement savings programs, such as 401(k)s and 403(b)s. Some of these provisions add clarity to SECURE 1.0, while others create incentives to employers for offering and to employees for participating in plans.

For those in the business of distributing and managing plans, supporting the provisions of 2.0 poses varying degrees of business challenges and perceived benefits.

In March and April, LIMRA surveyed member companies engaged in distribution, recordkeeping and asset management for defined contribution (DC) plans about their plans and reactions to several key provisions of SECURE 2.0. We received responses from 28 individuals and 19 companies. The respondents represent more than $5.7 trillion in DC assets under management and approximately 390,000 DC plans. In addition, several firms identified as “distribution.”

We asked about organizations’ plans to implement various provisions and to weigh their expected expense/effort against the business benefit. We also asked if they expected the adopted provision to be industry-changing for the good (or otherwise) or if the provision would not have a major impact. Finally, we asked whether respondents felt the provision would be effective in helping to increase access to retirement savings. 

Opportunity Knocks

Respondents felt that SECURE 2.0’s facilitation of in-plan annuity options would be the most beneficial provision for their businesses overall, but about two-thirds also felt that this would represent at least some degree of business expense.  Also, highly ranked as “good for business” were:

• Automatic enrollment and escalation for 401(k)s and 403(b)s
• Mandatory Roth catch-ups for highly compensated employees (HCEs)
• Increasing the required minimum distribution (RMD) age
• Elimination of RMDs for employer Roth Accounts

Supporting provisions relating to Roth contributions are potentially problematic, given that many plans do not support Roth contributions today.

With respect to requiring catch-up contributions by HCEs to be made as Roth (post-tax) contributions, both the survey and LIMRA industry conversations indicate a significant amount of recordkeeper angst at the prospect of lining up the necessary support and payroll linkages to appropriately categorize and tag contributions by the end of the year. Relief — in the form of an extension – is not expected until fall at the earliest — far too late to begin efforts to support. Word-of-mouth industry feedback indicates that there is a possibility that some sponsors will turn off catch-ups until everything is in place — which, ironically, runs counter to the provision’s revenue-generating potential in the first place, and the act’s stated goal of increasing access and participation.

Business Challenges

At the lowest end of the “good for business ranking”:

• Easing top-heavy plan rules
• Allowing collective investment trusts (CITs) in 403(b)s
• Long-term part-time worker eligibility reduction
• Permanent rules for declaring distribution relief for national disasters
• Allowing 403(b) pooled employer plans (PEPs)

Most recordkeepers see limited possibilities in the field of 403(b) PEPs; nevertheless, a few are extremely active in the multiple employer plan market and see possibilities. Where there is opportunity, consensus is it’s with ERISA 403(b)s and possibly with traditional nonprofit organizations (i.e., 501(c)(3)s and possibly in healthcare. 

Figure 1: Perceived Business Value

As far as impact on the industry (increasing access and partipation), requiring automatic enrollment and escalation was rated the most positively (Figure 2), followed closely by student loan matching — both of which are also perceived as the most expensive provisions to implement. Few respondents felt that provisions would have a negative industry impact, but many perceived a negligible industry impact from some provisions, notably the facilitation of in-plan annuities, which the respondents believed would be good for their own businesses.

Figure 2: Industry Impact

As with the first SECURE Act, implementation will take time; several provisions will not become active until 2024 or later. Plan service providers will need to work with distributors, support vendors and plan sponsors to decide which provisions make the most sense for their own business models and their customers’ plans, and amend plan design and documentation accordingly. Service providers are, at present, focusing on supporting required provisions, with plans to turn resources and attention to optional provisions in the (likely near) future.

LIMRA will continue to monitor industry reaction and the state of retirement plans across a variety of dimensions as the industry adapts to an ageing and retiring population, as well as to the needs of multiple generations of workers in the workplace.