Required for 2024
There are over 90 provisions in the Secure Act 2.0. Hear from RSG’s clients’ perspective on the legislation addressing student loans, emergency savings, ROTH employer contributions. The two driving themes that directly address the social problem of the American savings culture are:
- more tax credits/incentives for businesses to offer the programs
- a significant increase in pushing auto-enrollment and auto-escalation features
Eight months in and clients start reacting to the Secure Act 2.0
On December 29th 2022, US Congress passed the Secure Act 2.0. As the name suggests this is in many ways a continuation and doubling down on the efforts of the original Secure Act passed back in December of 2019. The primary goal in my opinion is getting more Americans covered by and saving in a qualified retirement plan, such as 401(k).
Why a national focus on retirement savings now?
For decades there have been reports on the solvency of Social Security that were “down the road” discussions. Now, these danger zones seem frighteningly soon. Even with some of the system flaws, to date there is still no better proven savings vehicle for the average American than an employer sponsored retirement plan with payroll deductions, thus the 401(k). So how do we get more Americans covered and how do we get more people participating?
There are over 90 provisions in the Secure Act 2.0. Much of what RSG’s clients are talking about are on a variety of relevant points in the legislation: student loans, emergency savings, ROTH employer contributions are the most discussed. But the two driving themes that directly address the social problem of the American savings culture are
- more tax credits/incentives for businesses to offer the programs
- a significant increase in pushing auto-enrollment and auto-escalation features
It is true that at this point, mid-2023, these two massively impactful elements of the legislation both only affect new plans, but there are many changes coming to the new and existing plan market.
What makes a Good Retirement Advisor Great
I have been serving as a fiduciary advisor for both investment and administrative decisions to our clients here at Retirement Solution Group and RSG Advisory for 18 years now. As our team has grown I have coached people coming aboard that the three keys to being a good retirement plan consultant is to
- Be a specialist. There are many aspects of retirement planning, so be a specialist in something with notable breadth and depth.
- Have a take. A consultant should provide solutions and direction in their content matter
- Listen. No one knows the client’s business, the client’s reality and the client’s strategic direction/plan more than the client. So we listen. Then it is our job to bridge where they are, what is available and what makes the most sense based on where they are going as a business.
The Impact of Secure 2.0 on Businesses
It is with this in mind that I reached out to a few clients and asked them to weigh in on some thoughts and feelings on how this new legislation will impact their retirement plans. Specifically, I asked where they may have some concerns with elements of the act. Keep in mind, this is not trying to suggest anyone is right in their approach and/or that the overall desire to cover more Americans is not worth the related pain points. But it is to rather share some thoughts from a few of RSG’s engaged clients and their interesting perspectives that may offer some insight and spur new discussions as other businesses venture down this analysis.
After reading the Act back in January, I identified some areas where the reality of implementation may be challenging. The first scenario that hit me was implementation for businesses with diverse groups or with very unique workforce groups. i.e. Businesses with both office driven engineers and field laborers. Similarly, implementation would be more complex for businesses whose employees are physically spread out throughout the country. This would make analyzing some of the optional features a little tricky. With that in mind, I reached out to some friends and proactive clients to get their perspectives, and listen.
An Engineering Firm Creates a Savings Culture
I started by asking Gary Wendel, VP of HR for RJN Group, Inc., how the expanded provisions create unique challenges for employers like RJN? “Our challenge will be twofold. Firstly, with employees spread around the country, how do we effectively communicate complicated changes that will impact staff in a way that is clear, and allows them the flexibility to ask questions?” said Wendel. “The second, and probably larger challenge is the “wait and see” that’s required. As an employer we want to be proactive in communicating with staff, especially as some of these changes have already been widely publicized. However we still don’t have full details as to how our payroll vendor will be implementing these changes, how our provider will be administering the changes, etc. So it creates some confusion and complications that we just don’t have answers to at this time.”
I then followed up by asking Gary about his diverse workforce with many engineers and field operators. When you look at the Secure Act 2.0 changes and optional changes, how do you best assess what is right for your employees when your employee needs are so different? Gary replied, “RJN has always believed strongly in helping employees invest and save for their future, both through our ESOP and the 401(k). We also have a strong culture and great benefits – so some provisions, such as the student loan payment match, are already better-covered under another benefit plan. Other optional provisions such as emergency savings accounts, or ROTH employer contributions are still something we’re looking into. While there could be benefits for staff, there may also be more effective ways to assist our employees in saving for emergencies.”
A Textile Services Business Anticipates Plan Administration Adjustments
People’s Linen in Keene NH is another great client that highly values both employee benefits and serving their community. As a commercial linen company, they, like much of their industry, struggle with high turnover and attracting and retaining employees. I asked Craig Smith, VP of Human Resources, if he had any concerns on implementing or managing any of the aspects of the Secure Act 2.0. “Not too much seems difficult or surprising as it applies to us. With our high turnover rate leading to a lot of small balance accounts left hanging on the books, the raise in cash out limit ($7,000) is a nice change,” said Smith. He went on to add, “I am glad the mandatory enrollment portion does not apply to us, yet. I feel with our demographic it would leave a lot of our employees, who already are stretched in their budget, in a bad spot. Probably will lead to even more small balances to clear out and ultimately unclaimed funds. But as we look into these and other features such as emergency savings, loan repayments and more ROTH utilization, there will be an increased administrative burden on us as an employer for sure.”
A National Bakery Embraces Auto-Features
As many of you know, I am fully committed to the expansion of retirement plan coverage. Presently, my efforts are focused specifically in our Pooled Employer Plans (PEP) where we are currently onboarding thousands of new savers. But with these clients newly coming aboard it is tough to view the impact of the auto-features, as it is so new. Remember that per the Secure Act 2.0, all new plans must now have 3% auto-enrollment and auto-escalation up to 10%. So I went to one of RSG’s oldest and best clients to talk about the significance of turning on auto-features such as this. Turano Bakery was a Chicago based family business that has exploded into a national brand with a smart/progressive culture. They embraced auto-enrollment, after much internal analysis and discussion, years ago to address the same underlying issues that the government is now trying to legislate.
I asked Sam Blasi, Insurance & Benefits Manager of Turano Bakery, to speak to some of the concerns out there expressed by folks in manufacturing. Concerns especially from bi-lingual communities that automatic enrollment and auto-features will create a lot of confusion and be tough to culturally implement. As a firm who implemented auto-enrollment proactively even though they have high numbers of both manufacturing and bi-lingual employees, I wanted to know how it was received? “Getting employees to start thinking about their retirement at an early age is key. If auto-enrollment is how we can help move this process along, I’m 100% behind it, regardless of the industry that you’re in. As it pertains to auto-escalation, individuals can become complacent with their deferral rates, especially as their wages increase. By having an Auto Escalation program in place, we’re assisting them with the planning process for their future retirement plans. Will this require additional training/communication on our part, yes it most definitely will. With that said, we have a fiduciary responsibility to our employees, assisting them in getting to a reasonable retirement outcome is just part of the job and our responsibility.”
What Business Need to Know about Secure Act for 2024
The Secure Act 2.0 is less than a year old and many provisions kick in in 2024 and 2025. But it has already gotten a lot of press, discussion and analysis. The first step is to make sure you have proper fiduciary best practices in place, and that your committee is having discussions like this with a firm/consultant like us. By listening to our clients I believe we can strengthen our perspectives and add even more value to the hundreds of other companies and many thousands of participants we hope to get over the finish line to retirement with dignity. Please be sure to read our related article to help you get ready for Secure Act implementation in 2024.
The key to these discussions are to be fluid and ongoing. Not only does the Secure Act 2.0 rollout over the next few years, but many in our industry believe that Secure Act 3.0 is not far behind.