Late in March, the U.S. House of Representatives passed the SECURE Act 2.0, which could be a monumental step forward in closing the retirement savings gap in this country.
If SECURE 2.0 is passed by the Senate, 32 million small businesses have the potential to benefit from the law’s tax benefits and 100 million individual will benefit from workplace savings programs. This comes in addition to several other changes that SECURE 2.0 may bring about, including auto-enrollment mandates, changes to student loan payments and more.
Currently, about half the workforce in the U.S. does not have access to a retirement savings plan through their employer. With the significant changes proposed by SECURE Act 2.0 –particularly with expanded access to the $1,000 per employee tax credit – the industry could see the rapid expansion of access for workers to save for retirement. This act will make it even more affordable to invest in a retirement plan that helps employers recruit and retain top talent, improving the unique competitive advantage that small businesses can bring to bear in the market.
Not only does SECURE 2.0 make it easier for employers to start a new plan, the bill also expands the pool of eligible employees. Historically, employers could elect statutory maximums for an employee to join a 401(k) plan, requiring them to be at least 21 years old, work for the company for one year with 1,000 hours of service, and enter the plan within six months of meeting age and service requirements. These outdated restrictions have limited entire groups of employees from contributing to their own retirement.
Beginning in 2021, the SECURE Act added a secondary maximum: If an employee doesn’t meet the year-of-service requirement, they will be permitted to join the plan once they work three consecutive years with 500 or more hours of service. However, with the new SECURE 2.0 draft, this requirement is further reduced from three years to two. As a result, we expect to see an increase in recurring-seasonal and long-term, part-time employees becoming eligible to save in existing employer plans.
These changes mean new opportunities for advisors who are looking to grow their retirement business. Here are five things advisors can prepare to do – pending passage of similar terms by the Senate – to leverage SECURE 2.0 to better serve clients and grow their businesses.
- Revisit the existing client’s plan parameters.
Recommend employers open their plan to all employees right away. This may reduce the administrative burden, while adding a selling point to potential new hires. Not only could this allow more people to save, but it also could prevent the plan from becoming top-heavy and requiring employer contributions.
Additionally, SECURE 2.0 allows for small financial incentives; advisors can help employers consider gamifying engagement with the plan, or offering small cash bonuses to start participating, much like a bank offers rewards for setting up a new account.
2. Encourage matching contributions.
An even bigger win for employers looking to entice newer graduates – they may be able to deposit 401(k) matching contributions for employees who report student loan repayments. This provision aims to benefit workers who will no longer need to struggle between making student loan payments and wanting to save for retirement and earn the employer match. This is a win for employers with a deductible benefit that will attract talent.
3. Prepare for more auto-enrollment.
As currently written, SECURE 2.0 will require new 401(k) plans to include automatic enrollment provisions. Auto-enrolling participants at 10% will avoid a mandated increase, however enrolling them at 3% to 9% are other options if you are comfortable with an annual auto-increase. Note the cap will increase to 15% over time. Also keep in mind that permitted withdrawals within 90 days are mandated as part of this legislation, too. This helps employees that missed the opt-out timing to recoup their deductions without penalty.
4. Update your marketing materials.
Use language to reflect what SECURE 2.0 means for savers and employers. Consider adding a landing page on your website about the new benefits and opportunities to expand coverage, take advantage of new matching opportunities, and for expanded tax credits for both employers and savers. Consider content aimed at businesses with older employees, alerting them that catch-up contribution limits for workers ages 62-64 are increasing as a last-chance savings opportunity before retirement.
5. Call on new small and medium businesses.
This is a great opportunity to go over SECURE 2.0 with your small-business clients and explain why now is a great time to start a company-sponsored retirement plan. The startup tax credit will update to as much as $1,000 per employee, which can certainly move the needle for small-business clients who are on the fence about starting a new plan.
Legislation such as SECURE 2.0 is a bullish sign for the retirement advising industry. Sure enough, the small plan market is rapidly growing, projected to increase in size by 111% by 2025. With SECURE 2.0 being considered in the Senate, advisors have an increased opportunity to attract new small-businesses clients as well as help their existing clients understand the incentives and expand coverage of previously excluded employees. By expanding savings options to more people, advisors, employers, and federal and state governments can work together to close the savings gap in the U.S.
Amy Ouellette is vice president, Vestwell. She may be contacted at amy.ouellette@innfeedback.com.
© Entire contents copyright 2022 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.
Credit bureaus set to ease penalties for medical debt
What it means to be a B Corp and why you should consider being one
More Articles