PLANSPONSOR - March - April 2023 - 9

small businesses from certain mandates.
Most notably, employers with 10 or fewer
employees need not adopt the automatic
enrollment and automatic escalation
features required for all new plans created
in 2025 or later.
Parks notes, however, that the
SECURE Act of 2019 provides a tax credit
of $500 for the first three years after an
auto-enrollment plan is adopted. This tax
credit did not have an expiration clause and
was not repealed by SECURE 2.0, which
means that, when automatic features
become mandatory for all new plans, the
$500 credit will still apply for the first
three years for new plans using them.
Small businesses did not receive an
exemption from what might be the most
complicated provision in SECURE 2.0:
a mandatory Roth source for all catch-up
contributions made by highly compensated
employees. David Stinnett, head of strategic
retirement consulting at Vanguard,
warns sponsors to not " underestimate the
complexity of this provision. "
Section 310 changes the rules for topheavy
testing in 401(k) plans. Plans are
regularly required to pass the top-heavy
test, which
assesses
the
contribution
proportions that HCEs and non-HCEs may
make to a plan. If the plan fails the test, the
sponsor may make a 3% nonelective contribution
instead. This can be particularly
burdensome for small businesses, because
they are more apt to fail the test, according
to Parks, and the 3% contribution, in effect
a penalty, would hurt their budget more
than it would a larger business's.
Thus, small businesses have an incentive
to remove excludable employees-e.g.,
lower paid and part-time employees-
from their plan to pass the test and avoid
paying the 3%. Section 310 allows sponsors
to perform a top-heavy test on excludable
and non-excludable employees separately,
thereby making the test easier to pass and
reducing the incentive to remove excludable
employees from the plan.
Although the section does not apply
to small businesses only, it does potentially
affect them more. -Paul Mulholland
TIDBITS
403(b)s and CITs: The Real Story
Contrary to the industry's hopes, expectations
and even some early reports, the provision
enabling 403(b) plans to invest in collective
investment trusts didn't make it into the final
SECURE 2.0 legislation. The provision was axed
by the House Committee on Financial Services
due to " consumer protections " concerns.
The Longevity Factor
MOST AMERICANS have low " longevity
literacy, " or knowledge about life expectancy,
according to research from the
TIAA Institute and the Global Financial
Literacy Excellence Center at George
Washington University. The organizations'
2022 Financial Literacy, Longevity Literacy
and Retirement Readiness survey asked
3,582 individuals for the life expectancy,
at age 60, of people of their own gender.
The sample was weighted for education,
income, work status, generation and race.
The question came with three
answers to choose from. For men, it was
16 more years (living to age 76), 22 more
years (to 82) and 28 more years (to 88).
For women, the answers were 19 more
years (living to 79), 25 more years (to 85)
and 31 more years (to 91). In both cases,
the correct answer was the middle choice.
Respondents could also answer that they
did not know.
Among men, 32% answered correctly,
11% overestimated longevity, 31% underestimated
it, and 27% said they did not know.
Among women, 43% answered correctly,
10% overestimated, 19% underestimated,
and 28% said they did not know.
Surya Kolluri, the head of the TIAA
Institute, says the gender gap on longevity
literacy was perhaps the most interesting
finding. According to Kolluri, women
often trail men in general financial
literacy, but this survey suggests that men
may trail women in longevity literacy.
Those who got the answer correct and
those who overestimated their gender's
longevity had essentially the same retirement
preparation behaviors. This could
suggest that, if people know their gender's
life expectancy, or overestimate it, they are
taking it seriously, which lends itself to
more thorough retirement preparedness.
Also, those who underestimated the
longevity tended to report better preparation
than those answering, " I don't know. "
For example, 37% of retirees who
said they did not know their gender's
longevity said their lifestyle in retirement
has fallen short of their pre-retirement
expectations, compared with 30%
of those who underestimated. Of the
latter group, 68% said they had saved for
retirement regularly, compared with 57%
of the " do not know " group.
So, while most Americans are not
sharply attuned to longevity as a function
of their gender, those who have thought
about it tend to be preparing more for
those years ahead. -Paul Mulholland
PLANSPONSOR.COM March - April 2023 9
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