A New Dawn on the Retirement Plan Landscape

The passage of the SECURE 2.0 Act is spurring an evolution in the retirement plan industry. As more guidance and clarification is provided on some of the provisions of this voluminous act we can see a very different future direction. So many of the provisions within this legislation are counter to the original structure and design of the 401(k)-retirement plan system implemented in the United States 50 years ago. There is a gradual but real shift in thinking by both plan sponsors and plan participants. We are on the cusp of this shift and the 401(k)-retirement business will be different than what it is today.

Retirement plans with rules and restrictions that say that a participant may not access the money until retirement are evolving. Thanks to the SECURE 2.0 Act it is permissible for a plan sponsor to allow participants to access funds for immediate needs, not only for retirement income, and permit in-plan emergency savings accounts. Not surprisingly many plan participants, especially younger workers, have more pressing concerns than retirement such as inflation, ballooning student loan debt and continued pandemic fallout. This evolution moves from strictly a retirement plan to what now can be called a financial benefit that employers can offer that can be used to meet current needs of their employees. For most employers, recruitment and retention of good employees is a struggle. Many employers are looking at their entire benefits package with fresh eyes to see how they can use the existing dollars to be more meaningful to and to be more of a priority of the employees than just retirement.

For those fortunate enough to be offered a retirement plan through the workplace and able to defer some of their paycheck into that plan, the focus has been on accumulating an account balance to be used upon retirement. The industry has done a great job on the front end of plan offerings by encouraging people to save and invest, and with implementation and utilization of automatic enrollment and escalation features. But on the back end we have some work to do. The challenge has been how to help these same participants decumulate their retirement account balance in retirement. Most people do not really know how to turn more money than they have ever had in their lives into a retirement paycheck. Of course, rolling over the account balance to an IRA or keeping the account balance within the plan are always options. Retirement income options and solutions are available now to help in turning that big nest egg into a regular monthly paycheck. While these products and solutions are available, plan sponsors are somewhat leery of implementing these into their retirement plan. A recent survey found that roughly six in ten plan sponsors view in-plan retirement income options as complex and nearly one in three are concerned that associated fees will mean higher costs for their companies. Some sponsors remain concerned about ensuring that participants have enough choices on the menu. More work is to be done in this regard. Additionally, the DOL has recently released proposed automatic portability regulations that will assist in this area.

Ultimately, with the increased flexibility in plan design and new provisions permitted with the SECURE 2.0 Act, plan sponsors have some decisions to make. Each employer will have to decide what optional provisions they would like to adopt or those they do not want to adopt at all. The retirement professionals at Greenleaf Trust can assist with these decisions. We have an understanding of this act and have resources available to research the options to best help our plan sponsors address not only the long-term financial needs but also more immediate financial needs of their employees and their companies. We are excited about this new landscape in our industry and will be with our clients on the same side of the desk to navigate through it.