Auto-Features: Are Plans Measuring Up to the SECURE 2.0 Industry Standard?

For plan sponsors, the end of the year marks a finish line for completing plan changes mandated by SECURE 2.0 Act of 2022. But the task of evaluating how plans are measuring up to new industry standards is still underway.

Bonnie Treichel, founder and chief solutions officer with Endeavor Retirement, based in Overland Park, Kansas, is watching plan sponsors asking detailed questions about their participant behavior and their own plan objectives while scrutinizing data about how employees’ retirement accounts are developing, to gauge whether savings are on track.

In particular, the provisions of SECURE 2.0 that stipulate, with a few exceptions, that all new retirement plans launched in plan years begun on or after January 1, 2025, must include automatic enrollment and automatic escalation features are central to discussions. But it also means that offering auto-enrollment and auto-escalation is becoming a baseline for plan design. Additional features need to be measured to evaluate a plan’s success and competitiveness with plans of other employers.

“The question is, ‘Are we trying to get participants to be able to retire successfully and what does that mean?’” Treichel says. “When you ask about the right default [level], it’s 3% up to 10% [in the law,]. Is that really the right amount?”

Meeting Requirements, Setting Goals, Measuring Outcomes

Plan sponsors, their consultants and legal advisers are reviewing how well both the features required by the SECURE 2.0 law and other plan options are performing. How do a sponsor’s automatic enrollment and automatic escalation features stack up? How well are new, optional features achieving the goal of boosting overall financial wellness?

Treichel sees employers, in their business and non-fiduciary capacity, asking big-picture questions about what they want their retirement plan to achieve and creating a guiding philosophy around that answer. With that in hand, business leaders acting in a non-fiduciary role, are working to develop a plan that accomplishes these goals—especially regarding automatic enrollment and default savings rates—including ways to track both company and plan-participant progress.

“They can use various tools to monitor: Is 3% the right [default] amount or should it be starting at 5%,” she asks. “That might depend on the participant population, where people are working, and it might be different depending on [if the company]…is a nonprofit. It’s more about what is it we’re really trying to achieve and then figuring out how to actually execute on that.”

Measuring Metrics

Some of the metrics plan sponsors are studying include participation rates. For example, Treichel advises plan sponsors with a default automatic enrollment to focus beyond auto-enrollment, to identify how many people are ultimately participating in the plan long-term, and how many opt out. Also, are participants choosing a different contribution rate, either higher or lower than the default rate?

In addition, Treichel sees increased attention being paid to recordkeepers’ plan-outcome assessment reports and tools, with particular analysis of the footnotes as well as the data sources that led to developing the reports. For instance, if the report shows that 99% of people are on track for adequate savings at retirement, it’s important to understand which data are being assessed and how the rate is calculated. For example, does the overview consider participants’ holdings in outside accounts?

New Benchmarking Best Practices

Treichel also recommends using industry benchmarking tools to compare average employer contribution rates, savings rates and participation rates. She advises plan sponsors to schedule a benchmarking review of plan-design elements at the same time as the plan’s regular benchmarking of fees for service providers.

“Check your plan health to see how you’re lining up against others,” she says. “It doesn’t mean that it’s wrong or right, but it can be helpful for checking in against peers and then checking back against your stated goals and objectives.”

Micheal Kreps, a principal in the Groom Law Group based in Washington, D.C., also describes a heightened focus on benchmarking and identifying peer groups, especially when comparing savings rates and contribution rates.

“They are comparing to industry norms and they’re benchmarking their plan on contribution rates,” he says, pointing to increased attention on participant outcomes and looking beyond savings rates. Plan sponsors are “doing this on an anonymized basis obviously, but they’re saying, ‘This person’s been with us 10 years: What do they have? Are they on track? Did we auto-enroll them at 2% and [did they get] stuck [at that contribution level] for a decade?’”

Kelly Lazzara, senior compliance counsel with Gallagher, based in Pittsburgh, says that, since SECURE 2.0, plan sponsors are benchmarking different plan features to ensure they remain competitive with their peers.

“Whereas before it was an individual organization’s business decision, the emphasis and importance being placed on benchmarking against peers and what others are doing—and that competitiveness—is increased,” Lazzara says, adding that it has become a bigger part of the conversation than it was two to three years ago. “It’s actually a pretty notable shift that people are really paying attention to that and collaborating with their consultants to develop their peer group.”

She also sees a change in the conversation more broadly from retirement-plan access to retirement-plan effectiveness, with SECURE 2.0 sparking new questions.

“We are seeing that, with those automatic escalations, the opportunity to save, it just opened up a broader discussion on that philosophy,” she says. “How are you approaching this? And what is meaningful to these employees? Are they saving? Are they going to be where they need to be?”

Many plan sponsors are providing financial wellness programs and access to advisers to give employees targeted assistance, Lazzara says. And while Lazzara has not yet seen many employers adopting some of the optional SECURE 2.0 provisions, such as the emergency-savings or emergency-distribution features, she sees their offering financial wellbeing plans as potentially helping offset the need for hardship withdrawals.

“If you’re working with someone you may not need those emergency-distribution opportunities,” Lazzara says.

More on this topic:

	Benchmarking Retirement Benefits as Recruitment and Retention Tools
	Benchmarking Retirement Income is More Than ‘Checking a Box’