The retirement industry has been buzzing since the SECURE 2.0 Act was signed into law last December. This new, comprehensive legislation has sparked a lot of discussion. As with any major reform, it will take time for the industry to fully adapt and understand all its implications.
Following our April 11 webinar on the first three months of the industry’s response, our team reconvened to discuss some of what we have heard from our client and vendor partners and to respond to some of the great questions we heard from attendees.
Panel participants included the following HBS team members: Noah Buck, Christina Bauer-Dobias, Sean Bayne, Vincent Bocchinfuso and Kathleen Coonan.
The Discussion
SB – Throughout the webinar, I wanted to stress two things: 1) confusion about where to start and what is expected from plan sponsors is normal; and 2) even more than three months in, this is a developing situation and people should expect changes as time goes on. With those in mind, engagement throughout the webinar was strong, and I really appreciated the questions we received from participants.
VB – Absolutely. We would be surprised, if not skeptical, if plan sponsors were feeling completely comfortable with every provision.
NB – That’s why sponsors leveraging available resources is so important; there’s no reason to try and make sense of all of this in a vacuum. Drawing from the conversations we had with recordkeepers, it seems they are eager to get started in the same way that plan sponsors are – getting ahead of questions and concerns now helps with future planning.
SB – So let’s take some time to talk about the questions we heard during the webinar. Number 1: Has “long term” been defined for long-term part-time employee eligibility?
CBD – I really appreciated this question because it was initially addressed in the 2019 SECURE Act, even though it’s since been modified. I think it highlights how the landscape is continuously shifting and what may have been considered settled is always subject to change.
KC – That’s a great point, and I agree. Of course, with SECURE 2.0 we know that two years is the explicit term for a long-term part-time employee, but even that puts things like tracking hours and breaks in service under the microscope.
SB – Right. Let’s move on to the second question from the webinar. What compensation should be used to determine who is subject to mandatory Roth catch-up contributions?
VB – This was another great question because it’s not as simple as it might appear on the surface. The text of the legislation references FICA compensation, which is essentially gross wages. This is interesting, particularly because it’s not widely used in other retirement applications.
NB – This was mentioned during the response to this question on the webinar, but it’s worthwhile to revisit. Remember that payroll partners can assist with getting sponsors or recordkeepers the information they need.
SB – Moving on, and continuing with Roth catch-up, an attendee asked whether estimated 2024 compensation or actual 2023 compensation should be used to determine the impacted group. Vince, can you walk us through that?
VB – Of course. It’s a look-back, so the 2024 group will be determined by 2023 compensation, much the same as the highly-compensated employee designation process.
KC – If only they could have used the same limit.
VB – Exactly, and we’re hearing that everywhere. No apparent rationale behind that limit figure.
SB – Maybe, or hopefully, that could be updated over the next year or two to have a single limit for highly compensated employees and Roth catch-up employees, just for ease of administration. Another participant asked for insight on the rationale behind pushing out the start date for required minimum distributions. Anyone care to weigh in?
CBD – My initial thought, and one that seems to be supported by conversations we’ve had with our partners, is that this is just a reaction to higher life expectancies. People are living longer, so there’s no reason to mandate the draw-down of balances.
NB – Right, and not only living longer, but they’re also working longer. It makes sense to have regulations correspond to what is actually happening.
SB – Yes, and keep in mind, the legislation pushes the RMD age out even further: to age 75 by 2033. For our last question, a participant asked how third-party administrators, who might need some time at the beginning of a plan year to assess the Roth catch-up group, should treat the deferral elections for the impacted group. Again, great question, but I see this as a specific case where each approach might be slightly different. What do you all think?
VB – Definitely. That’s a great point to remember, as well. These changes are sweeping and significant, and record keepers or other stakeholders can assist, but there are certain situations where a unique, custom approach is necessary.
KC – I try to make that point clear to the sponsors that I work with; understanding the broad strokes is important, but the details will vary. Yet another reason to work closely with your consultants and other trusted resources to break this down into manageable pieces.
SB – Good point, Kathleen. That wraps up the questions we heard during the webinar. This has been great! Thank you all, as always, for your insight. Hopefully, we’ll have even more clarity and context to discuss in part three.
This is part 2 of our series on the SECURE 2.0 Act. Stay tuned for more analysis and discussion on the key components of this landmark legislation.
HANYS Benefit Services is a marketing name of Healthcare Community Securities Corp., member FINRA/SIPC, and an SEC Registered Investment Advisor. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.