SECURE 2.0: Key Provisions and Their Impact on Retirement Communications
SECURE 2.0 has made and will continue to make profound changes to the way people save for retirement. But it also changes the way everyone else in the retirement value chain needs to communicate with them. From required disclosures to annual communications, compliance with the law can be challenging.
But it’s not simply the idea of compliance in a legal sense. Trust is imperative, and people are looking for a clear, transparent, and understandable explanation of how the changes impact them. And this is where your role as a retirement plan provider is so important—because not only are participants seeking clarity, plan sponsors are as well. Following our not-so-brief introduction to the new law and its impacts, we’re today shifting focus to explore all the things that affect you and your clients.
And that’s what we’re looking to discuss over the next thousand words or so: Some of the potentially confusing elements for plan sponsors and participants—and how retirement plan providers can create value, reduce complexity, and deliver the right message at the right time.
Automatic Enrollment for New Plans
It’s a provision that’s likely to cause confusion for some. It likely has done so already. And if a plan sponsor has implemented a new 401(k) or 403(b) plan after the passage of SECURE 2.0, employees might face some confusion on why they were automatically enrolled, what options they might have, and how they can modify their contributions.
And the same question might pop up every year when the automatic contribution increase comes into play.
Provider Goal: Deliver Clarity Before, During, and Throughout
From something as simple as “how much is being taken out?” to questions regarding employer contributions, account access, or investment choices, it pays to deliver proactive, clear, and comprehensive information. And it pays to do so before their employer starts taking three or more percent out of their paycheck.
Before, during, and after enrollment, retirement plan providers need to help plan sponsors develop consistent messaging, including but not limited to:
Pre-Enrollment Education: Help a participant understand what’s going to happen, when it’s going to happen, and what else they can expect. And of course, remind employees that an automatic enrollment is not a mandatory contribution—and that the individual can opt out.
Seamless Onboarding: Get people excited. After all, even if they didn’t actively make the decision, they still are investing in their future. Provide new participants with a welcome kit that includes plan details, instructions on how to access an account, and necessary contacts. Show them how to manage accounts and make decisions. And personalize the content to drive meaningful engagement.
Consistent Messaging: Help employees understand their impact by providing them with annual updates, individualized messages (like catch-up contributions), and ongoing education on account options. And be sure to deliver it in language a participant can understand.
Again, proactivity is key. It can help you reduce headaches and increase trust. And it can help drive positive outcomes.
Catch-Up Contributions
Catch-up contributions have allowed late-career employees the opportunity to make a big push when their retirement date is rapidly approaching. And under SECURE 2.0, catch-up contributions are getting even more flexibility.
Though many plan participants may understand that they can make additional contributions after they turn 50, it’s important for plan providers to educate these individuals on the rules, requirements, and potential Roth treatment that may occur.
Provider Goal: Help Participants Understand Regular and Super Catch-Up Contributions
With the new Super Catch-Up rules coming into play in 2025, participants will have questions that you should be ready to answer.
It’s been said before and will be said again, but communication is key—and personalized messaging makes all the difference. Long before an employee hits age 50 and 60, plan providers should be making individuals aware of eligibility, helping them understand the impact of contributions, and providing enrollment support once the date comes.
Specifically, plan providers will want to provide ongoing communication on the limits and adjustments that will inevitably come as a result of inflation.
Provider Goal: Ensure Understanding Roth Catch-Up Rules for High Earners
On the other hand, high earners will need to play by a different set of rules. Because for those making more than $145,000, catch-up contributions need to be made as Roth contributions.
Plan providers will need to help sponsors communicate these changes early and often, starting with advance notice and continuing throughout the participant’s tenure in this bracket. If needed, providers will need to educate high-earning participants on the differences between pre-tax and Roth contributions, the benefits of Roth contributions, and the steps required of participants.
Flexibility and Access in the Case of Emergencies and Disasters
From penalty-free withdrawals for emergency expenses, domestic abuse victims, and federally declared disasters to the option for employers to offer an Emergency Savings Account, SECURE 2.0 offers a wide range of flexible options for participants to access their nest egg in time of need.
But here’s the problem: Any draw against retirement savings is a risk—even if it’s penalty-free. After all, retirement savings is all about growth. Even $1,000 less in the account is $1,000 that isn’t being reinvested. And it still will need to be paid back.
This is why SECURE 2.0 introduced Emergency Savings Accounts. Able to be offered alongside a traditional retirement account, ESAs allow for after-tax contributions to be used to create a rainy-day fund for employees when they need it—for whatever reason. This allows a participant liquidity without the hurdles, penalties, and other red tape that comes with an emergency withdrawal.
Provider Goal: Communicate the Nuances of Emergency Savings Accounts
An area in which both participants and plan sponsors will need support and advice, ESAs can be nuanced. For example, even though an employer can’t directly contribute to the ESA, they can match the contribution. And participants need to know that even if the account has ‘emergency’ in the name, they are free to use the money tax- and penalty-free for any reason.
To drive awareness, adoption, and understanding, retirement plan providers should look to clarify what these are and why they’re important, while discussing the ease of use and long-term utility.
Provider Goal: Provide Clarity on Emergency Withdrawals
Unlike an ESA that could be used for Christmas gifts, emergency withdrawals are truly emergency based. And even the $1,000 penalty-free withdrawal for emergency expenses requires a participant to return the money.
Though two of the three provisions only requires a participant to self-certify, the decision to do so should not be taken lightly—and plan providers need to effectively communicate the impact. From messaging the availability of these programs to providing education on what constitutes an emergency and encouraging repayment after the fact, providers need to deliver clarity and stability in a time of need.
Increased RMD Age
Despite being a welcome change, the increased age in which participants will need to take a Required Minimum Distribution can be a source of confusion—especially when tax time rolls around.
Provider Goal: Highlight the Positives, Discuss Changes, Educate about Implications
It’s an undeniable benefit—participants will have more time to let their nest egg grow before they need to start drawing out money. More flexibility and tax-deferred growth never hurts. But plan providers will need to create consistent messaging to near-retirees and younger participants about the changes and effects.
Personalized, plan specific messaging can go a long way in helping address concerns and identify opportunities. For example, a later distribution age might result in a higher distribution. Higher distribution could result in a participant moving up a tax bracket. The solution could be a Roth conversion. Simple things, communicated effectively, can do a lot.
And to make this happen, providers will need to equip sponsors with talking points, tools, and FAQs so that they can better educate employees approaching retirement age.
Student Loan Matching Contribution
One of the most intriguing provisions—and one that will absolutely require clarity both to sponsors and participants—is the optional match for student loan payments. The concept is simple. Allow employers to establish a program in which they treat qualified student loan payments as elective deferrals.
The reasoning is sound. Money invested at this stage of life has the most time to grow and mature. But student loan payments often stand between an employee and his or her ability to save.
The benefits are palpable. Employees can turn their debt into an asset. Employers have an opportunity to use this in their recruitment and retention efforts.
The implementation… can be challenging. And providers will need to play a role in building the program and communicating how it works.
Provider Goal: Drive Awareness and Adoption among Sponsors and Participants
Retirement plan providers have the opportunity to serve as a trusted advisor and create a meaningful impact on individuals’ lives. That said, marketing the program to sponsors can be a challenge. After all, it is an optional program. But it is more palatable than simply offering student loan repayment as a benefit.
Further, if sponsors do opt to offer this, plan providers will want to help ensure that participants are aware of the program. Remember, these are the individuals who are extremely unlikely to understand taxes—let alone retirement. Accessibility will be critical, and messaging about eligibility, tax implications, and more should be clear and concise.
Lost and Found Database
And the final provision that we’ll be discussing today is the creation of the lost and found database—and providers’ unique role in making it a success. Though the program is starting small, requesting participant data of individuals age 65 and over, it will continue to grow in size and scope after going live at the end of 2024.
Provider Goal: Help People Avoid Falling Through the Cracks
Providers and other entities administering retirement plans play a significant role in bringing the database to life and helping to connect lost accounts with missing participants. And there are a variety of ways to make things easier for everyone involved:
Educate Plan Sponsors: Plan sponsors need to know their roles and responsibilities. From accurate record-keeping to onboarding and offboarding, providers can help sponsors prevent plans from getting lost.
Keep Sponsors Engaged: The database will continue to grow. The amount of information requested will as well. Providers should have a coherent messaging strategy for plan sponsors to help them understand best practices.
Support Communication during Employee Transitions: The database should be a last resort. The goal here is to proactively communicate to prevent participants from going missing in the first place.
Connect with Participants: Develop communications that help plan participants keep up with their savings. Inform them of their rights, options, and responsibilities. Highlight some of the common reasons accounts get lost and provide resources on how to keep contact information up to date.
The database should be a safety net, not a default option. But with the right messaging, data hygiene, and effort, plan providers can make everyone’s lives just a little bit easier.
Simplify Communications and Control the Chaos
The SECURE 2.0 Act is a cumbersome document, filled with a lot of moving parts, nuances, and challenges. Participants need answers. Plan sponsors need to provide them. And plan providers need to facilitate the communications process and deliver the much-needed information when and where it’s necessary.
If you’re looking to create true business value for plan sponsors (as we discuss in part three of our series)—and want to do so without creating headaches for yourself (part four)—Sepire can help.
With a deep understanding of retirement communications, Sepire knows how to help retirement plan providers deliver timely, compliant, and consistent messaging with minimal administrative burden. From template and workflow management to automated direct mail and omnichannel delivery, we can help you sent the right message to the right person at the right time.
Ready to learn more about how we can help you? Drop us a line and we’ll get the ball rolling.