Plan Sponsors Need More Clarity on Optional SECURE 2.0 Provisions

A key theme that has emerged from Alight’s annual “hot topics” survey is that employers need more guidance on key provisions in the SECURE 2.0 Act before fully embracing them. 

In looking at changes employers intend to make to their retirement and financial wellbeing plans in the coming year, the survey found that just three SECURE 2.0 features have the majority of employers saying they are “definitely” or “likely” adopting them: the increased force out limit for vested balances (60%), allowing for hardship self-certification (60%), and super catch-up contributions for those aged 60-63 (62%). Additionally, employers say they are very likely to adopt loan extensions for disasters and withdrawals for domestic abuse.

Employer respondents were then asked to select among three options that best describe their urgency with adding optional SECURE 2.0 provisions (plan to add soon, even if guidance is unclear; need more legal clarity before proceeding; and no legal concerns, but it isn’t a priority right now).   

Of those provisions that employers said they are “definitely” or “likely” adding, the ones that fell into the “plan to add soon, even if guidance is unclear” category included:

• Increased force out limit for vested balances up to $7,000 in DC plan (60%)
• Allowing for hardship self-certification (50%)
• Allowing up to $10,000 withdrawal for domestic abuse (37%)
• Allowing up to $22,000 withdrawal for disasters (32%)

In contrast, the legal uncertainty of many SECURE 2.0 provisions is keeping employer adoption at bay, Alight notes, adding that this is particularly true for some of the novel provisions. In fact, all employers in the survey say they would need more legal guidance before considering the Saver’s match contribution. Notably, the least popular are the provisions with the most questions, like the $2,500 emergency fund and matches on a Roth basis.

The provisions cited that “need more legal clarity before proceeding” included:

• Saver’s match contribution (100%)
• Employer match to Roth (89%)
• $2,500 Roth sidecar emergency savings (83%)
• Match student loan payments (71%)

Increasing Interest in Lifetime Income

Meanwhile, a second key theme identified by the findings is that employers are showing more interest in lifetime income than they have in the past. In fact, they appear to be slightly more interested in non-guaranteed features than annuities. 

In this case, Alight found that more than half of employers are at least moderately interested in a non-guaranteed lifetime income option in their DC plan. Fiduciary concerns, market evolution and participant adoption were the most-cited barriers keeping more employers from being interested.

• Fiduciary concerns major reason (57%)
• Waiting to see market evolve more (54%)
• Participant utilization concerns (51%)
• Operational or administrative concerns (47%)
• Difficulty with participant communications (46%)

In comparison, half of employers say they have no interest in adding annuities to their DC plans. The top hurdle is now operational and administrative concerns, while fiduciary concerns were previously at the top of the list. 

DC Plan Focus

A final, third theme that emerged from the findings is that employers apparently are shifting their focus in DC plans from measures like participation to higher-level outcomes like financial wellbeing and retirement readiness.

According to the findings, 53% of employers say they are satisfied with their plan’s participation level—the first time Alight has seen this to be above 50%.

But while employers are more satisfied with most aspects of employee behaviors—such as participation, asset diversification and encouraging lifetime income—more than half say they are very likely to now focus on improving broad financial wellness, such as helping their employees recognize retirement readiness and assessing long-term savings opportunities.

More specifically, nearly 4 in 10 (39%) employers say addressing broad financial wellbeing is the most important employee behavior, while a quarter cite recognizing retirement readiness as the most important.

When asked how likely their organization is to create or focus on financial wellbeing of employees (plan features, planning resources, communication, mobile apps or online tools) that expands beyond retirement decisions, almost 60% of employers said they are “very likely” to do so, with another 31% saying they are “moderately likely.”

Additional findings from the survey include the following.

Few employers want terminated participants to take their money out of the plan when they stop working. More than half of employers (52%) say they don’t have a preference for what workers do with their money upon termination. However, of those with a preference, the number who want people to keep balances in the plan is seven times the number of those who want to people to remove their balances.

Employer interest in ESGs has plateaued. Nearly 6 in 10 employers (58%) now say they have no interest in ESG funds. Only 2% of employers say they have any interest in adding digital assets like cryptocurrency or non-fungible tokens (NFTs) to their DC plans.

Most employers are interested in a rollover clearinghouse to help people transfer balances when they change jobs. More than half (58%) of employers say they are at least moderately interested in a clearinghouse service that will automatically transfer balances from one employer’s plan to a new employer’s plan.

“Turbulent financial markets, inflation and global uncertainty have people and employers wondering ‘what’s next?’,” says Rob Austin, Head of Research at Alight. “Employers are responding to these broad challenges by focusing on their employees’ overall financial wellbeing. At the same time, employers are in no hurry to adopt the optional provisions of SECURE 2.0. Instead, they are waiting for more guidance on the gray areas. While asset classes like ESG, cryptocurrency and NFTs grab the headlines, only a handful of employers are considering them.”

The 2024 version of Alight’s Hot Topics in Retirement and Financial Wellbeing is the 20th installment of the report and features responses from 87 organizations employing three million workers. The survey was conducted in the fall of 2023.