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Benefits February 3, 2025
Where Does SECURE 2.0 Implementation Stand for 2025?
While plan sponsors have prioritized implementing mandatory provisions, many of the optional provisions have taken a back seat due to administrative complexities and a lack of guidance.
Reported by Remy Samuels
Art by David Plunkert
The SECURE 2.0 Act of 2022 has been law for more than two years, and plan sponsors have made significant progress in adopting the required and optional provisions laid out in the legislation.
However, recordkeepers and consultants have observed that plan sponsors have been slow to include certain optional provisions—such as pension-linked emergency savings accounts and student loan matching in defined contribution plans.
David Amendola, defined contribution strategy and intellectual capital and innovation leader at WTW, says he has seen a slower movement to adopt many of the optional provisions than was expected. He attributes this slowness to recordkeepers still developing the technology necessary for plan sponsors to adopt several optional features, combined with uncertainty about how the different provisions should be administered.
“The scale and the breadth of all the provisions has made employers who are being good stewards think through how [they] want to approach this and how to allocate [their] time and energy,” Amendola adds.
He says many plan sponsors are adopting SECURE 2.0 provisions in a “phased approach” by first focusing on the required provisions, then tackling optional provisions once there is more guidance and recordkeepers are more prepared.
Provisions Gaining Traction
Amendola notes that there has been an uptick in adoption rates for some of the optional emergency distribution provisions, such as domestic abuse survivor distributions and the annual $1,000 emergency expense withdrawal.
Adam Tremper, head of retirement platforms at T. Rowe Price, says 65% of plans recordkept by T. Rowe Price have adopted self-certified hardships, and 11% of plans have specifically adopted the domestic abuse withdrawal option.
SECURE 2.0 also gives plans the option to let participants ages 60 through 63 make extra catch-up contributions starting this year—adding $11,250 to the standard $23,500 pre-tax contribution limit. Tremper says 84% of plans on T. Rowe Price’s large-market platform have already adopted this provision.
“Most plans have already jumped on that bandwagon, and maybe that’s why [some are] shifting to the Roth match and other Roth focus areas,” Tremper says.
Amendola notes that until guidance was released by the IRS earlier this month, there was considerable uncertainty about whether this provision was optional or not. Since the IRS clarification that this provision is optional, Amendola believes there will be an uptick of plan sponsors adopting it.
Where There’s Hesitancy
While the emergency withdrawal optional provisions appear to be gaining traction, the option to add a sidecar emergency savings account, or PLESA, has seen little, if any, adoption.
Tim Rouse, executive director at the SPARK [Society of Professional Asset Managers and Recordkeepers] Institute, says adoption of PLESAs has been tempered by some operational complexities for recordkeepers. He adds that more guidance is needed before they can be widely implemented.
Highly compensated individuals cannot participate in a PLESA, but Rouse says this qualification is not determined until one year after a participant has reached that highly compensated status. For participants on the verge of being considered highly compensated, Rouse says it is unclear whether they are eligible to participate in a PLESA.
Beyond administrative complexities, Amendola believes one of the driving factors behind why PLESAs are seeing low adoption is that recordkeepers have not shown themselves capable of administering them yet. However, Tremper says that T. Rowe Price is “full bore” on building out the PLESA option and is planning to roll it out this year. At the same time, he says he has not seen many plan sponsors request to be on the initial rollout of the feature.
“I think there’s a little bit of ‘wait and see,’ but some of the clients we have are significant in size, so I think it’s going to be a pretty material impact later this year,” Tremper says.
Amendola believes as more major recordkeepers come online with the capability to offer PLESAs and some large, influential employers start to roll it out, there could be a “cascading effect” of more plan sponsor adoption.
Administrative Complexity
With the student loan matching provision—by which employers have the option to provide a matching 401(k) or 403(b) contribution to employees paying qualified student loan payments—uptake from plan sponsors also remains fairly stagnant.
Rouse says a complication with this provision is that participants can self-certify that they are making student loan payments. While this makes providing the match easier from an administrative perspective, Rouse says many plan sponsors have expressed concerns about fraud.
“[SPARK’s recordkeeper] members want to make sure that they properly service their clients, and if their clients aren’t satisfied with the self-certification approach, then we have to address how best to deliver on the certified process right now,” Rouse explains.
Rouse says the Department of Education holds much of the student loan data and announced last year, unrelated to this specific provision, that it would not release student loan information. As a result, Rouse says the retirement industry needs to find a way to work with the DOE to address the certification concern.
Another optional provision with complexity, although it does not go into effect until 2027, is the Saver’s Match, according to Rouse.
Rouse says a participant will not know if they qualify for the Saver’s Match, a federal retirement plan contribution for low-income earners, until they do their taxes, as eligibility is based on modified adjusted gross income. SPARK is engaged in discussions about how the Department of the Treasury can collect some sort of tax identifier number so that the government can then submit payments to individual recordkeepers on behalf of qualified taxpayers. Rouse says SPARK’s recordkeeper members want to ensure that this process is efficient and that Treasury is not sending payments to individuals who are no longer participants in a plan. Saver’s Match contributions could also be made to an individual’s individual retirement account.
Rouse says “both the lost and found [database] and the Saver’s Match are the first time in the history of our retirement system that the recordkeepers are actually integrated with the government for transaction processing. We have to make sure it’s done efficiently.”
Amendola notes that most plan sponsors are not particularly focused on the Saver’s Match right now, as it does not go into effect for two years, but are more focused on “quick wins” when it comes to implementing SECURE 2.0 provisions.
“[Employers] can make some changes, like the domestic abuse survivor distribution … [or] the age 60 to 63 super catch-ups. Those are things that employers could really focus on and make some meaningful changes without necessarily impacting [their] budget,” Amendola says. “I think a lot of employers, if they’re looking at this strategically, have viewed this in phases so that they can really take meaningful chunks out of the out of the act, while still evaluating some of the [optional] ones.”
