By Jamie Kasabian
The passage of the SECURE (Setting Every Community Up for Retirement Enhancement) Act in 2019 marked a significant shift in retirement savings policy in the United States. This legislation aimed to enhance access to retirement plans, particularly for small businesses and their employees. With the introduction of SECURE 2.0 in late 2022, the evolution of retirement planning continues, further refining and expanding the framework established by its predecessor. Among the notable advancements are the optional provisions for Pooled Employer Plans (PEPs) that aim to streamline retirement offerings and improve outcomes for participants.
Understanding Pooled Employer Plans
Pooled Employer Plans allow multiple, otherwise unrelated employers to participate in a single retirement plan, thereby sharing administrative responsibilities and costs. This model is especially beneficial for small to mid-sized businesses that may struggle to offer a cost effective and robust retirement benefit program independently. By pooling resources, these employers can access better investment options and lower fees, enhancing the overall retirement experience for their employees, all while reducing the time they must spend administering the retirement plan and lowering their fiduciary risk.
SECURE 1.0: Foundations Laid
SECURE 1.0 laid the groundwork for PEPs by allowing for their establishment and easing regulatory burdens for plan sponsors. Key provisions included:
- Increased Access: Small businesses could now join PEPs without the complexities of setting up their own plans, making retirement savings more accessible.
- Fiduciary Relief: By allowing third-party providers to take on fiduciary responsibilities, SECURE 1.0 provided businesses with relief from the burdens of fiduciary liability.While a company can never fully eliminate their fiduciary responsibility, they can reduce the risk it poses to the company and the individual fiduciaries.
- These foundational elements set the stage for more robust retirement options but left room for enhancement through the optional provisions in SECURE 2.0.
SECURE 2.0: Optional Provisions
SECURE 2.0 introduced several optional provisions designed to further incentivize participation in retirement savings plans, particularly through PEPs. These include:
- Automatic Enrollment and Escalation: A requirement for new plans effective after December 29, 2022, to include automatic enrollment and auto escalation. There are some exceptions for small and new companies. Existing plans are encouraged to automatically enroll employees and increase contributions over time up to 15%, which can significantly boost savings rates.
- Student Loan Repayment Contributions: Employers can now match student loan payments with retirement contributions, addressing the financial strain of student debt while simultaneously promoting retirement savings.
- Increased Catch-Up Contributions: The ability for older employees to make larger contributions can help them prepare for retirement later in their careers.
Impacts on Pooled Plan Providers
Pooled Plan Providers (PPPs) play a crucial role in administering PEPs and are uniquely positioned to leverage the optional provisions of SECURE 2.0. Their approach to incorporating these elements will vary based on strategic objectives, client needs, and regulatory compliance.
- Adopting Automatic Features: Many PPPs are likely to implement automatic enrollment and escalation features, as research consistently shows that these mechanisms significantly increase participation rates. This is a clear win-win: employees save more, and employers benefit from higher employee retention and satisfaction.
- Navigating Student Loan Contributions: The integration of student loan repayment matching is a game-changer. PPPs must consider the administrative complexities of tracking and managing these contributions but can position themselves as forward-thinking providers by offering innovative solutions that resonate with younger employees.
- Educational Initiatives: As providers implement these provisions, they will need to invest in educational resources for both employers and employees. Clear communication about how these features work and their benefits will be essential in driving adoption and maximizing impact.
- Customization and Flexibility: Some PPPs may choose not to adopt all optional provisions, focusing instead on customizing offerings that best meet the needs of their specific participating employer base. This tailored approach can allow them to differentiate themselves in a competitive market.
- Regulatory Compliance and Adaptation: The evolving landscape will require PPPs to remain agile, adapting to regulatory changes while ensuring compliance with the complex frameworks surrounding PEPs and their optional features. This however is a benefit to companies that join PEPs, as these operational and administrative decisions are handled by the PPP.
Conclusion
The SECURE 1.0 and SECURE 2.0 Acts represent a significant evolution in the retirement plan landscape, particularly through the lens of Pooled Employer Plans. The optional provisions introduced in SECURE 2.0 offer powerful tools for enhancing retirement savings, particularly for underserved populations in small and mid-sized businesses. As Pooled Plan Providers begin to incorporate these features, the impact will likely be profound, influencing not just participation rates, but the overall financial wellness of the workforce. The future of retirement savings is brighter, but it will require thoughtful implementation and ongoing education to fully realize its potential.
