What’s Secure 2.0 Got to Do With It: a Hot Take on Automatic Enrollment
If you’re like us, you’re hearing the words “Secure 2.0” bandied about everywhere you go.
SECURE 2.0 made it over the line as part of the late-breaking 2023 Appropriations Act (Division T), signed into law as you were picking crumpled wrapping paper off the floor and putting your sparkling into the fridge for New Year’s Eve.
And, it’s a veritable cornucopia of goodies. We counted about 40 provisions when we read this part of the Act, and we’re sure we missed a few.
We’ll do a short series on some of the provisions, focusing on the ones that impact you, and retirement security, the most. Let’s start with our favorite:
Automatic Enrollment.
Under the new law, retirement plans are required to automatically enroll their workers. We like automatic enrollment because it makes worker participation so simple, so natural, and participation rates jump. But the law has some important exceptions that will slow the roll of this new retirement plan feature.
WHO IS INCLUDED
New retirement plans started on or after January 1, 2025
By private sector businesses that are 3+ years old, with 10+ employees
WHAT ARE THE FEATURES OF AUTOMATIC ENROLLMENT
Automatic savings rates of 3% to 10% to start, at the preference of the employer
Automatic savings escalation of 1% a year, to 10%-15%
An investment that is QDIA-eligible (such as target date funds)
WHO IS EXCLUDED
All retirement plans established before January 1, 2025 – including all existing retirement plans
SIMPLE Plans
Governmental and Church plans
Plans of small businesses less than 3 years old, or with 10 or fewer employees
MEPS are treated at the employer level, not the plan level
What it means in real life.
We talked to our friend Josh Cohen, of PGIM about what this all means. (Josh also hosts the amazing podcast The Accidental Plan Sponsor. 5 Stars. It’s a must listen for RSM readers, start with Season 1.)
Not surprisingly, Josh has a measured view of what the new automatic enrollment provisions will achieve in the near term. “Because it’s just for new plans, the impact on broader retirement readiness in the US will probably take a while to see.” Think about who usually starts new retirement plans: it’s small business. Big business, and even most medium-sized businesses, generally already offer plans.
We’re waiting on the numbers (feel free to share if you have them) – but we believe it’s a pretty small group of employers that will be covered by this provision every year.
“That being said, it’s another step to get more individuals into the retirement savings system,” says Josh “and it starts to create an environment where the norm is that you will be automatically enrolled into saving if you are covered by a retirement plan at work.”
We agree. And we’ll add to that – if you work in a state that has an active Auto IRA program (California, Connecticut, Illinois, Maryland, Oregon – soon to be joined by Colorado, Delaware, Hawaii, Maine, New Jersey, New York, and) Virginia – you will be covered and you’ll be automatically enrolled there.
So should states stop their efforts, given this new auto-enroll feature in Secure 2.0? We think not. Secure has some provisions that will expand coverage, but they too have limitations.
Stay tuned, we’ll address some of those coverage elements in our next edition.
Retirement security matters! / Lisa
This piece was written by Lisa Massena and the views expressed are her own. You can get your own copy of the Secure 2.0 Act as included in the 2023 Appropriations Bill here.
This piece was also featured in the January 12, 2023, edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.
