SECURE 2.0 101: What It Is, Why It’s Happening
It weighs in at just under 57,500 words and is nestled safely between “Oceans Related Matters” and the “Joseph Maxwell Cleland and Robert Joseph Dole Memorial Veterans Benefits and Health Care Improvement Act of 2022” within the 2023 omnibus spending bill.
It’s the compilation of overwhelmingly popular bills including the Securing a Strong Retirement Act, the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act (RISE & SHINE), and the Enhancing American Retirement Now Act (EARN).
It builds on the already significant “Setting Every Community Up for Retirement Enhancement (SECURE)” Act of 2019. And it includes far-reaching consequences for individuals, employers, and the organizations who support both.
It’s the SECURE 2.0 Act—and it’s already making sweeping changes to the way that Americans save for—and live in—retirement. Consisting of 90+ provisions taking effect throughout the decade, SECURE 2.0 covers everything from day one on the job to retirement and beyond.
Today, we’re kicking off our SECURE 2.0 series with a simple-yet-lengthy introduction on what it does and why it’s happening, highlighting the effects it aims to have on participants, plan sponsors, and providers both now and in the future.
And over the next few articles, we’ll break down some of the provisions, trends, and challenges that exist both for defined contribution plan sponsors and those who serve them including TPAs, Recordkeepers, Financial Advisors, and Plan Consultants:
Key Provisions and What They Mean in Retirement Plan Communications
How Retirement Plan Providers Can Serve as True Business Partners
The Challenges You’ll Face in Delivering Communications under SECURE 2.0
The Power of Template Management: How Plan Providers Can Reduce Their Own Workload as SECURE 2.0 Takes Effect
SECURE 2.0: Bigger and Bolder
Providing Americans with a path to retirement security has always been a bipartisan issue. Pensions are essentially nonexistent in the private sector. Retirees have realized that they are likely to outlive their savings. Many in the younger generations have doubts about the long-term sustainability of Social Security.
Like its predecessor (and many laws passed before that), a not-insignificant portion of SECURE 2.0 aims to provide more access to retirement benefits. Unlike the original SECURE Act,
And whether those provisions change, augment, or replace SECURE 2.0’s predecessor, employers, employees, and those in charge of the plans have a lot of work to do in the coming years.
A Continuation & An Expansion
Strip out all the provisions, dates, goals, and action items, and you come to a simple truth: A majority of SECURE 2.0 is a logical expansion of the original.
One example of this exists in the eligibility of long-term part-time workers. While SECURE made it easier for part-time employees to participate in a retirement plan, SECURE 2.0 reduced the service time requirement from three years to two. Or the heavily requested increase to the RMD age. SECURE 1.0 increased the require minimum distribution age from 70 ½ to 72. SECURE 2.0 increased that to 73 in 2023 and 75 in 2033.
A Challenge
SECURE 2.0 is both a challenge and a challenge. On one side, it will require plan sponsors and those who serve them to update paperwork, policies, and procedures. And as we’ll discuss in coming articles, it will require significant changes to the way that each communicates.
But it’s also a call to action. A challenge for employers and employees to do more. And there is a lot more carrot than stick in this law. Instead of a traditional law chock full of penalties for noncompliance, SECURE 2.0 is generally focused on incentives.
Why?
Like its predecessor, SECURE 2.0 aims to encourage people to invest in their future. And it came at an important time. Many Americans were struggling to keep things together—let alone focus on retirement. SECURE 2.0 aims to bring retirement into focus at an economic inflection point. Here are just a few reasons it comes at the right time.
Continue the Momentum
As mentioned earlier, SECURE 2.0 is a continuation of its predecessor. And its goal is to take all the things that worked—and go even further. In fact, over the past five years, provisions of the original SECURE Act did deliver, and when compared to the BLS employee benefits report in March 2019 (before the first SECURE Act was enacted), things have been working:
More bottom-quartile earners have access to some kind of retirement plan (54%, up from 46%)
Same goes for part-time workers (47% of part-time employees are eligible for retirement benefits—up from 40% in 2019)
Affordable and easier-to-administer “safe harbor” retirement plans (the core provision of the original bill) have driven adoption among small businesses—specifically at those with 1-49 employees.
Access continues to improve, with 76% of all civilian workers having access to retirement benefits—up from 71% in 2019.
SECURE Act 2.0 aims to do even more. And it came at a key economic inflection point.
Address Continued Challenges in Access and Participation
Between SECURE and SECURE 2.0, the world has changed. We’ve gone through an economic shutdown, civil unrest, a massive resignation event, significant inflation, and reasonably weak private sector recovery. Retirement hasn’t been on the minds of people simply trying to afford groceries and fill their gas tanks.
And a portion of SECURE 2.0 is focused on helping workers who have fallen through the cracks—because many of the original challenges remain. According to BLS Employee Benefits Data from March 2024:
Low-income workers might not have budgetary flexibility. 54% of individuals in the bottom quartile currently have access to retirement benefits. Only half of those participate.
Part-time employees rarely got the opportunity to do so. Just 25% of part-time employees participate in retirement plans.
Small businesses found it challenging and costly to even set up retirement plans. 40% of employees at firms with fewer than 100 employees don’t have access to retirement benefits.
Even if everything lined up, many simply failed to enroll. Among all civilian workers, three-quarters of employees had access to retirement benefits. A quarter of those with access didn’t make use of them.
And this has led to continued shortfalls. According to Vanguard’s 2024 How America Saves report, the median account balance for individuals 65+ sits at only $88,488. Worse, the same report found contributions and balances to be extremely top-heavy, with median balances only starting to ramp up once an employee hits $100,000. And SECURE 2.0 aims to address this.
Provide for a Lifetime of Contribution
It’s not easy to save for retirement. Early career employees generally make too little. Late career employees often dealt with contribution caps. And it left many struggling.
For early career employees, SECURE 2.0 has introduced in interesting provision—student loan contribution matching. One of the biggest roadblocks in retirement savings, a younger employee might be paying half of their income or more in student loans. Under SECURE 2.0, employers will have the option to treat the student loan payment as a qualifying contribution to an employee’s 401(k) or other similar retirement plan.
And for those with rapidly approaching retirement dates, SECURE 2.0 has made it a lot easier to make last-minute contributions, offering increased catch-up contribution limits at age 50 and significantly increased (super catch-up) rates once employees hit 60.
Account for Increasing Life Expectancy
Despite recent decreases in life expectancy resulting from the COVID-19 pandemic, the fact remains the same—Americans are generally living longer.
As with the original SECURE Act, SECURE 2.0 further increases the age in which a retiree takes a Required Minimum Distribution or RMD. For context, the 2019 law increased this age from 70 ½ to 72. And 2.0 went even further, increasing the age to 73 in 2023 and 75 in 2033.
Despite creating a few practical and tax related challenges for retirees, the increase has been deemed necessary to account for longer life expectancies. A “nonevent” for many who are likely to start withdrawing long before the event, the delay could push some retirees who wait into a higher tax bracket.
Deliver Transparency
Beyond the changes to savings, enrollment, and the like, SECURE 2.0 adds a lot of change to disclosure requirements and other communications. From paper statement requirements sent annually for defined contribution plans to fee disclosures, provisions included in the new law will require more communications and transparency.
Like the rise of the fiduciary rule, this does provide an important and somewhat necessary change. But it will require a change in the way you communicate—and add a lot of complexity along the way.
Communications Are Changing—Control the Chaos before It’s Too Late
SECURE 2.0 includes a wide range of provisions affecting individuals, sponsors, and those who serve them. And this includes significant changes to the way the latter two of these must communicate.
For those of you who support plan sponsors and future retirees, SECURE 2.0 serves as both a challenge and an opportunity. On one side, new communications requirements will come into play that will add complexity to the way you work. On the other, it provides you an opportunity to secure your role as a trusted advisor and business partner for plan sponsors.
As things increase in complexity and chaos, it pays to stay in control of it all. And that’s what we hope to discuss over the rest of the series—the long-lasting impact of provisions, the actions required by plan sponsors and retirement plan providers, and the best course of action for each to become compliant.
Template Management by Sepire: Communications Made Easier
With the SECURE 2.0 Act introducing a wide range of new provisions that will require Plan Sponsors to update their retirement plan communications, Sepire offers a comprehensive template management solution that streamlines this process. By centralizing updates and limiting the number of templates needed, Sepire can help providers deliver timely, compliant, and consistent communications—while reducing administrative burden.
From simplified compliance to significant cost savings, Template Management by Sepire facilitates communications and marketing for plan sponsors, providers, and the like. Get to know more about our expertise in financial services and retirement communications and drop us a line when you’re ready to get started.