PLANSPONSOR - March - April 2023 - 39

INSIDE ANGLE
For Fiduciary
Consideration
SECURE 2.0 provisions could alter how a plan is administered
T
he SECURE 2.0 Act of 2022, which builds on the Setting
Every Community Up for Retirement Enhancement Act of
2019, became law this past December 29. It has generated
sustained and well-deserved interest from the plan sponsor community.
While most of the provisions that have garnered headlines
relate to a sponsor's design of its retirement program-
e.g., sponsors' new freedom to include a student-loan employer
match-many provisions warrant the attention of plan fiduciaries,
as the law could alter their ongoing administration of the
plan. While not exhaustive, the following summarizes a few key
provisions of SECURE 2.0.
Paper Disclosures Required
Currently, many plan sponsors use digital means to distribute the
benefit statements that the Employee Retirement Income Security
Act says must be provided. SECURE 2.0 directs the Department of
Labor to issue regulations requiring the sending of analog, written
statements to defined contribution plan participants once per year
and to defined benefit plan participants once every three years.
Quarterly statements may still be provided in a virtual format.
Participants may opt out of these paper statements through
a specific safe harbor procedure that the DOL prescribes. The
paper statement requirement will be an important consideration
for those plans that solely provide their annual benefit statements
virtually and may impose administrative costs on plans unprepared
for the change.
Benchmarks for Multi-Asset Funds
DOL rules only partially address the requirements to make disclosures
to participants regarding benchmark information for multiasset
strategies-e.g., target-date funds, managed accounts and
balanced funds-that include a mix of asset classes. SECURE 2.0
attempts to correct this oversight by directing the department to
update regulations, allowing blended benchmarks for these investment
classes to be included in required disclosures; this would
enable more effective and helpful comparisons for participants.
The regulations are mandated to be released within two years of
SECURE 2.0's passage.
Consolidation of Plan Notices
In a provision many plan sponsors will welcome, SECURE 2.0
directs the IRS and DOL to allow plans to consolidate some of the
plethora of plan notices required of plan sponsors on a quarterly,
biannual and annual basis. These regulations are expected to be
released within two years and will potentially have a large impact,
reducing complexity and administrative friction for plan sponsors.
Lost and Found Database
Missing participants have been a large administrative headache
for plan sponsors, as well as a primary area of focus for DOL
investigations. In an attempt to ameliorate these issues, SECURE
2.0 directs the department to create a national online database
that allows participants to search for retirement accounts they
may have lost track of; this is targeted to be operational within
two years of enactment.
Recovery of Overpayments
As plan sponsors know, even plan fiduciaries with the best intentions
sometimes make mistakes in distribution amounts. When
those mistakes are in favor of a retiree, they can result in costly
recoupment procedures that burden pensioners and deflect valuable
administrative resources. In an attempt to fix these potential
issues, SECURE 2.0 gives plan sponsors discretion not to recoup
these overpayments under certain circumstances.
Automatic Portability Transactions
With job changers as a new reality for many plan sponsors, some
have looked for alternatives to either keeping these workers in
the plan or transitioning them to a safe harbor individual retirement
account. Here, SECURE 2.0 provides a third path, which
allows for the transition of small-balance participant accounts to
the plan of the worker's new employer. The availability of autoportability
would depend on the plan's engagement of an autoportability
network, which would locate, match and transfer any
such account to the participant's new employer plan.
The above changes are just a sample of the host of extremely
consequential provisions in SECURE 2.0. Plans should closely
monitor these developments along with the industry trends they
could precipitate in this rapidly changing retirement landscape.
Steve Saxon is a partner in Groom Law Group, Chartered,
and George Sepsakos is a principal in Groom. Offices for
Groom are in Washington, D.C.
PLANSPONSOR.COM March - April 2023 39
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