To 5 Action Steps Plan Sponsor should perform regarding Secure Act 2.0
Like many of you, I have devoted a significant amount of time in the past two weeks to studying the new regulations introduced by Secure Act 2.0. However, despite the abundance of information on these changes provided by seasoned experts and ERISA attorneys, I have noticed that these resources often fail to address the role of plan sponsors in implementing these new requirements.
As a retirement plan advisor and Plan Sponsor for over 25 years, I understand that many Plan Sponsors do not have the time and expertise to thoroughly review the 400 pages of legislation and create comprehensive procedures, responsibilities, and roles to implement the new rules. Therefore, I created this overview of the top 5 action items that I recommend to plan sponsors. Additionally, I have also included a link to my detailed overview or each section of the Secure Act 2.0. There is a commentary for each section offering my thoughts on action steps that a Plan Sponsor should take.
Understand the different provisions.
The goal of the Secure Act 2.0 is to create more comprehensive retirement programs that provide individuals with a significant source of income at retirement. It includes around 100 provisions, including new rules and modifications to existing practices. These changes may cause temporary difficulties to the operations of your retirement plan, but they may ultimately improve the plan in the long run. And while not all changes impact defined contribution retirement plans, but many do.
Service Provider Review
Plan sponsors should work with service providers to assist in implementing the new rules and to discuss roles and responsibilities for each required change or new policy execution. Service providers should provide:
- Details on their implementation plan.
- Timeline.
- Expected processes.
- Roles and responsibilities for each new rule.
It is important for plan sponsors to review service provider offerings to ensure they meet the plan's expectations and consider alternative solutions if current service providers are not prepared for the new provisions. Changing service providers before the new rules are implemented is better than after.
Verify census information.
The Secure Act 2.0 requires a more thorough examination of employee census data, as it contains provisions that hinge on the participant's date of birth and tenure with the employer. However, there are often errors in participant census information, which can have significant financial repercussions for individual participants and the plan. To mitigate this risk, Plan Sponsors should establish a process for census review and validation by individual participants to improve accuracy, minimize risk, and improve communication with each participant.
Communication to participants
The Secure Act 2.0 requires Plan Sponsors to inform active and ex-employer participants of current and upcoming changes to their benefits, meeting compliance requirements and improving participant understanding of their benefits. Plan Sponsors should develop educational materials and a rollout program with ongoing updates and check-ins to provide participants with the necessary information. To ensure compliance and participant understanding of their benefits, Plan Sponsors should develop educational materials and a rollout program for the Secure Act 2.0 changes. This includes assigning educational responsibilities to external advisers or service providers and requiring confirmation from each participant that they have received and understood the information. Plan Sponsors should also have a plan to follow up with unresponsive participants and verify their understanding of the new rules to protect themselves from any participant claims of unawareness of changes or benefits.
Document everything you do
The Secure Act 2.0 requires plan sponsors and plan committees to document all efforts throughout the compliant implementation process. Detailed written documentation of each rule and the implementation process will provide proof of due diligence in case of plan audit or litigation. Plan sponsors and plan committees who need assistance with the documentation process should seek outside support. It is important to remember that documentation is ongoing and continually evolving, so plan committees should regularly review and update their retirement plan files.
These five steps are critical in maintaining compliance with the new rules which require consideration and implementation over the coming years. For a more detailed understanding of each provision, I have included a link to my review of each Secure Act 2.0 section. I have included commentary on each section detailing my recommendations for Plan Sponsor implementation.
I am not a lawyer, and my suggestions are based on the information I believe to be reasonable and will help ensure compliance. As you review my recommendations, please let me know if you have any questions or would like to add suggestions for more effective implementation strategies for plans, plan sponsors, plan committees, and participants.
