SECURE 2.0 (the Act) is one of the major pieces of legislation affecting the post-COVID world of retirement plans as we know it. A reconciliation of five separate bills, the Act contains over 90 new provisions that significantly impact the retirement plan landscape. But the fun certainly does not stop at the sheer number of provisions. The Act comes with both mandatory and optional provisions, layered effective dates and so much more.
Here a few strategies how you, as a Plan Sponsor, can tackle this major piece of legislation, one step at a time:
- Consider the type of provisions – not all 90 provisions of the Act require mandatory adoption. Start by understanding the applicability of the mandatory provisions and specifically, who is in charge of those- your third-party administrator (TPA or plan vendor), your benefits/human resource team, your finance team or all of the above. If your TPA can handle those, what are the associated costs? When it comes to the optional provisions, consider the following 3 questions-
- Is the optional provision applicable to my participant base? Certainly, spending the time and effort to implement an optional provision that will benefit less than 1% of your participant base may not prove to be the best and highest use of your organizational and plan resources.
- Does your organization have the capabilities to implement the provision? Consider the resources needed to implement an optional provision- will it be done by your vendor and at what cost? Will it have to be administered internally and how much time will that take away from a benefits or a finance team already jugging multiple priorities?
- Is now the “right” time to implement? While optional provisions have effective dates, they do not come with “expiration” dates. With that in mind, Plan management can certainly choose to adopt an optional provision at a later date when resources and timing are more conducive to an easier implementation track.
- Pay close attention to effective dates as some provisions (both mandatory and optional) are effective in 2023, 2024 and 2025. If you happen to miss a mandatory provision such as a change in the required minimum distribution (RMD) age from 72 to 73, do not despair. IRS notice 2024-35 provides relief with respect to certain RMDs that are not made in 2024. Specifically, the notice provides that if certain requirements are met, a plan will not fail to be qualified for failing to make a specified RMD in 2024, and a taxpayer will not be assessed an excise tax for failing to take the RMD. This notice also announces that the final regulations intended to be published relating to RMDs are anticipated to apply for purposes of determining RMDs for calendar years beginning on or after January 1, 2025. For all other provisions, document effective dates, paying close attention to effective dates for mandatory provisions.
- It is all fun and games until it’s time to execute plan amendments- the biggest question to ask your TPA is who will be in charge of those. Will your TPA handle them and if so, at what cost? Will they only handle the mandatory provisions? If so, consider talking to ERISA counsel regarding the optional provisions sooner than later and factor the associated costs in your cost-benefit analysis of that provision.
- Document, document, document! You’ve heard the auditor’s mantra before but truly, this is a survival mechanism when it comes to an Act containing over 90 provisions. Be sure to document contemporaneously as this is especially important for the optional provisions. In times when unprecedented employee turnover is a part of life, contemporaneous documentation is an insurance policy that will set your plan up for success and allow a successor employee to pick up where the predecessor left off with minimal disruption to plan operations.
- Be thoughtful about the cost of compliance – consider the cost and benefits of each optional provision. Do you have adequate resources to administer it in house if your retirement plan vendor cannot handle it from A to Z? Which provisions will require significant time from your benefits or finance team? Are they already stretched thin as it is? What other organizational priorities will have to take a back seat while your teams implement the new provisions, put additional internal controls in place, test implementation and so on?
- Set resources aside for participant education- with so many changes brought by SECURE 2.0, the work is certainly not done when decisions are made on which provisions to implement and when. The work is also not done when plan amendments have been executed. It takes time and effort to educate participants on all of the new provisions, answer questions and ensure participants are actually taking advantage of all of the hard work that went in the implementation of the Act. Be sure to factor the time needed and reach out to those who stand to benefit!
SECURE 2.0 can seem overwhelming at a first glance but your Plan auditor and third-party vendor(s) can be valuable partners in helping your Plan comply with the legislation. Use all that the Act has to offer as another tool to reward and retain your best employees and most importantly, start the conversation today!
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
