Loan benefits

A closer look at the less discussed provisions of SECURE Act 2.0


(Photo: Shutterstock)

Already in this legislative session, lawmakers introduced three bills – two in the Senate and one in the House – designed to reform America’s complex retirement savings system. Of these, HR 2954, the “Strong Retirement Security Act of 2021,” advanced the furthest. Intended to build on the SECURE Law of 2019 , this “SECURE Act 2.0” contains 45 provisions that would simplify and broaden access to retirement savings. The published analysis of the SECURE Act 2.0 mainly focused on the 401 (k) automatic enrollment provisions, minimum distributions required, catch-up contributions and student loans. Rather, this article focuses on some of the less talked about provisions of the bill that could nevertheless have a significant impact on the compliance of the regime.

401 (k) eligibility rules are changing – again

Until recently, pension plan sponsors were not required to track the hours of part-time employees who work less than 1,000 hours per year. But the original The SECURE law introduced new eligibility rules dictating that Part-time workers who work 500 hours for three consecutive years must be allowed to participate in 401 (k) plans alongside full-time employees. Plan sponsors began counting hours in the new system on January 1, 2021. If the SECURE Act 2.0 is passed, payroll processes may require further adjustment as the new bill would further reduce the 401 (k) service requirement. (k) to include part-time workers who work 500 hours for only i consecutive years. Counting hours for part-time employees is not always easy. To relieve themselves of the administrative burden of counting hours, some plan sponsors may decide to extend eligibility to all part-time employees, regardless of hours worked. Others may choose to simply track time by crediting part-time employees a set number of hours for each day or pay period worked. Regardless of their approach to tracking hours or using equivalencies, plan sponsors who have not yet done so will need to coordinate with their record keepers, payroll providers, and information system providers. on HR (HRIS) to develop a plan to credit part-time employees who work 500 hours or more.

Pension plan overpayments no longer need to be recovered

Plan sponsors almost always find themselves in a difficult position when members have been paid more than the plan provisions provide. Recovering overpayments is easier said than done, especially if the mistake has accumulated over several years and the resulting ill will can work against other business goals. Yet, so far, the IRS has demanded that in the event of an overpayment, the plan be made whole so that it is preserved for all retirees who depend on its funds.

If the SECURE Act 2.0 is enacted, plan sponsors will have the flexibility to decide do not to recover accidental overpayments. The provision is intended to protect innocent retirees from the hardships of unexpected recoveries. Having the ability to write off overpayments could simplify plan administration, but it could also cost plans a lot of money. To limit their risk of deregistration, plan sponsors should check their plans for any errors and put in place a policy of regular plan review. More and more plan sponsors are hiring an independent third party to verify a percentage of their plan members’ calculations on an annual basis. In addition, plan sponsors can choose to schedule periodic compliance reviews at convenient times, such as when transitioning to a new plan administrator or payroll system, or when changes to plan provisions are made.

Lost participants might be easier to find

Every year, plan sponsors across the country who are ready to pay benefits find themselves unable to locate some retirees whose names or addresses have changed. The treatment by plan sponsors of lost members is increasingly a focal point of the United States Department of Labor (DOL) and its audits. The SECURE Act 2.0 could simplify things by creating a central data repository for information on lost plan members, aka “Lost and Found Retirement Savings”.

The workings of the proposed online system have not yet been defined. For example, in addition to locating lost members, plan sponsors have a fiduciary duty to identify spouses who may be entitled to a benefit. It is not yet clear whether the Lost and Found Retirement Savings would track missing beneficiaries. Building and testing a system that reliably relieves plan sponsors of the administrative burden of locating lost members will take time. Until then, plan sponsors will remain “subject” to the exercise of this fiduciary responsibility.

Plan sponsors will have more leeway to correct plan errors

Finally, the SECURE Act 2.0 would give plan sponsors greater flexibility in correcting plan errors. Plan sponsors would have more time – nine and a half months after the end of the plan year in which the errors were made – to correct missed contributions to employee retirement accounts without penalty. In addition, the bill would expand the reach of the Employee Plan Compliance Resolution System (EPCRS), which allows plan sponsors to report errors to the IRS themselves and correct those errors without penalty. important. The expanded scope would include a wider range of errors such as plan loan errors and some failure to make the minimum required distributions. This change should be good news for plan sponsors and administrators who otherwise have to go through the IRS to correct common and honest mistakes.

With industry analysts almost unanimous in their expectation that Congress will either pass the Ensuring a solid retirement or similar Retirement Security and Savings Act, now is the time to prepare. With proper planning and coordination with plan administrators and payroll service providers, plan sponsors can achieve SECURE Act 2.0 compliance with minimal business disruption.

Andrew A. Adams is founder and director of Strategic Advantage Advisors, a full-service, independent benefits consulting firm that solves benefit issues for clients with over 1,000 to 300,000 employees. Adams has 34 years of experience in the administration and consulting of benefit plans. He can be contacted at [email protected].