SECURE 2.0 implementation could challenge benefit rollouts

January 18, 2024, BOSTON—Newly in-effect SECURE 2.0 provisions may mitigate the challenges 401(k) plan sponsors face in engaging retirement plan participants in the saving and investing process. Recordkeepers will need to evaluate which provisions stand to help plan sponsor clients address the unique needs of plan participants, according to The Cerulli Report—U.S. Retirement Markets 2023.

Among optional SECURE 2.0 provisions, 401(k) plan sponsors report highest interest in offering small financial incentives to encourage employee participation in the plan (28%) and matching employee retirement contributions on a Roth basis (27%). Enthusiasm for financial incentives to encourage employee participation in the plan suggests that plan sponsors would appreciate creative ways to incentivize engagement with the retirement plan, a perennial challenge for plan sponsors.

The third optional provision receiving high interest from plan sponsors is offering an in-plan emergency saving account to non-highly-compensated employees (26%). Emergency savings has been a major area of focus in the retirement industry as plan sponsors and retirement plan providers seek to enhance the financial wellness of plan participants. SECURE 2.0 allows employers to offer pension-linked emergency savings accounts (PLESAs) to non-highly-compensated employees, but recordkeepers cite challenges implementing these accounts.

About two-thirds (68%) of recordkeepers indicate that of the notable SECURE 2.0 provisions (both optional and required), PLESAs would be one of the most difficult to implement. Some industry stakeholders cite concerns about the added administrative burden associated with these programs and the potential for misuse by participants. Other provisions, including catch-up contributions subject to Roth treatment for high-earning employees and acceptance of saver’s match contributions from the government for low-earning employees, are ranked as difficult to implement by 37% and 32% of recordkeepers, respectively.

“Considering these challenges, recordkeepers should evaluate which provisions will be meaningful for plan sponsors before dedicating the time and resources to implement them,” says Elizabeth Chiffer, analyst. “Recordkeepers should incorporate the discussion of optional SECURE 2.0 provisions into larger conversations about effective plan design; it is imperative that recordkeepers appropriately address the needs of plan sponsor clients and ensure they are equipped to deliver a plan design that suits participant needs,” she concludes.