Managing Today’s Plans

Understanding SECURE Act 2

Three proposed provisions that advisors should get ahead of

by Scott Francolini

Mr. Francolini is Head of Strategic Relationship Management & Consulting, John Hancock Retirement. Visit

On March 29, 2022, the Securing a Strong Retirement Act (SECURE Act 2.0) passed the U.S. House of Representatives with bipartisan support. The bill is subject to change and there are many steps to go before it may be signed into law. However, now is the time for plan sponsors to get out ahead of the compliance aspects of the potential provisions and start charting a possible course of action.

SECURE Act 2.0 builds on the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) of 2019. The goal is to help expand access to workplace retirement plans, encourage saving, and preserve retirement income. To do so, the bill includes several provisions that would affect plan design, eligibility calculations, contribution processing, and the timing of distributions. And since many of the proposed changes would be mandatory, plan sponsors would be required to adopt them.

Three key proposed provisions and the importance of coordinating with third-party administrators (TPAs) and payroll providers in advance are outlined below:

Auto-Enrollment And Auto-Escalation

What’s proposed: Employers setting up new 401(k) plans would be required to automatically enroll eligible employees at a default rate between 3% and 10%. They’d also have to automatically increase the rate by 1% annually, up to a specified limit. Employees would still be able to opt out and change their contribution amount. Businesses with 10 or fewer employees and those that have been in operation for less than three years would be exempt.

Planning considerations: Mandatory automatic enrollment and escalation features could have financial implications for employers, and they’d need help choosing the best plan design to minimize the cost. Financial professionals and TPAs can help employers model different scenarios, including matching versus profit-sharing contributions. They can also help employers decide if it makes sense to establish their 401(k) plan before SECURE Act 2.0 is effective, so they can have more control over their plan provisions.

Student Loan Matching Contributions

One of retirees’ greatest fears is running out of money. Raising the age for RMDs would give participants more flexibility when creating their deaccumulation strategy...

What’s proposed: Plan sponsors would be able to make matching contributions to an eligible employee’s 401(k) account based on the employee’s student loan payments.

Planning considerations: Student loan matching contributions could be challenging to implement due to the new procedures that would be required. Policies for obtaining employee representations verifying their loan payments would be needed, as would procedures for sponsors, TPAs, and payroll providers to make the contributions. Plan sponsors who adopt this provision would want to create a communication strategy, that among other things, addresses the concerns of participants who don’t have student loans.

Delaying Required Minimum Distributions

What’s proposed: The age for required minimum distributions (RMDs) would gradually increase from age 72 to age 75. One of retirees’ greatest fears is running out of money. Raising the age for RMDs would give participants more flexibility when creating their deaccumulation strategy.

Planning considerations: TPAs and recordkeepers will need to update their distribution processing systems and procedures. Plan sponsors will want to revise their participant distribution education and communications to reflect the new RMD ages.

While SECURE Act 2.0 has the potential to alter the retirement landscape, its passage this year may be determined by timing and other congressional priorities. Congress’ August recess is coming up quickly with the midterm elections shortly thereafter. The bill still needs to pass the Senate, and any differences between the two versions would have to be reconciled before going to the president for signature.

Despite this uncertainty, starting to plan now so you can hit the ground running should any of the proposed provisions become law will pay dividends in the long run.