Insight SECURE 2.0 Administrative Pandemonium – Are You Keeping Up?
By John C. Hughes,
Over the last six months or so there has been a flurry of activity relative to implementing “SECURE 2.0” provisions. As a reminder, SECURE 2.0 is a collection of laws passed at the end of 2022 that profoundly affect retirement plans. It is very important that employer plan sponsors recognize and carefully track/manage their ongoing decisions and associated fulfillments for three primary reasons.
First, a plan amendment must be adopted in the future that details the decisions made (and not made), and such amendment must reflect the effective dates relative to the various provisions adopted. The amendment will be lengthy and complicated. It will prove quite a task to later go back and attempt to pore over documents and piece together emails, etc. in order to determine actions taken. It is far better to document and track these decisions now. I am already encountering situations where plan sponsors do not recall and did not document decisions made in very recent months.
Second, the optional SECURE 2.0 provisions are to be made by the employer plan sponsors and their plan committees following due consideration. Recordkeepers are providing “opt in” and “opt out” opportunities at a furious pace, often in subtle ways with short response times, in effect making these decisions for employers.
Third, the optional provisions require legal compliance-related attention; that is, certain conditions must be fulfilled to comply with the new laws. For example, SECURE 2.0 allows plans to stop sending required notices to unenrolled participants. One of the conditions is that those participants were previously provided with the required notices. If the unenrolled participants did not previously receive required notices (safe harbor, summary plan descriptions, etc.), but this provision was implemented anyway, there would be noncompliance and associated adverse consequences. Additionally, it seems there are several pros and cons for plan sponsors to weigh before pulling that trigger and others, even if there is compliance.
Meeting minutes and other documents should reflect deliberate decisions on these issues. It also seems that keeping track by way of a spreadsheet of sorts containing a listing of options determined to be put in place (and the effective dates), options remaining on the table for further consideration, and options to dispense with will be very helpful.
Some issues of note, most recently the subject of deliberations and decision making, include:
- Self-certifications relative to hardship distributions.
- New in-service distribution opportunities such as in response to qualified birth and adoptions, emergencies, and domestic abuse.
- Higher catch-up contributions for those ages 60-63. Guidance was very recently issued on this topic in part confirming that the provision is optional, not mandatory, as many had asserted.
- Higher cash out/automatic rollover limits. One observation here is that raising the limit does not require an immediate plan amendment; however, if the amount to be automatically rolled over to an IRA limit is lowered from $1,000 to 1 cent in connection with that change (which I’ve seen some do), that would require amendment in the year the change is made effective (for example, in 2024, if effective in 2024).
- Permitted distributions and loan modifications relative to federal disasters.
- Modifications and tracking relative to long-term part-time employees.
- Participation in the automatic portability transactions.
- Matching on student loan repayments.
- Employer contributions as Roth.
- Cessation of notices (most notices) to unenrolled participants.
In summary, plan sponsors should be making SECURE 2.0 decisions with eyes open and with due consideration, those decisions should be tracked, and the provisions implemented in a legally compliant manner. It is important to avoid knee jerk reactions and to work with benefits counsel and other professional advisors to shore up processes and avoid future headaches. There are outstanding questions and pros and cons relative to all of these decisions that should not be taken lightly.
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