National risk management experts point out that although widely embraced, the comprehensive new Secure 2.0 legislation brings new compliance responsibilities for retirement plan sponsors. Here’s what you need to know—and do.
A Litany of Provisions
The sweeping new Secure 2.0 legislation is packed with provisions intended to ensure more workers have more opportunities to effectively save for retirement, as well as to draw on savings in the event of an emergency. Secure 2.0 also contains provisions that reward small business owners for strengthening existing retirement plans and incentives for getting a company sponsored retirement plan off the ground. For example, as Plan Sponsor reports, employers who offer matching contributions can receive tax credits.
While there is much for both businesses and workers to be excited about in Secure 2.0, plan sponsors will need to be ever more mindful and attentive to detail. Some of the new Secure 2.0 provisions became effective at the start of 2023, while others must be complied with in 2024 and 2025. As national risk management expert Richard Clarke points out:
The litany of new 401(k) and 403(b) benefit plan provisions staggered across multiple years places imposing compliance and reporting pressures upon employers to grasp, implement and plan accordingly. Realistically, even with diligent effort, plan sponsors will make mistakes. 2022 was the second most active year on record for ERISA litigation against plan sponsors, with 24 settlements totaling more than $160 million to date. Unfortunately, plan sponsors bear personal exposure for third-party claims of not meeting fiduciary obligations. Additionally, some plan sponsors think if they outsource administration, oversight, or supervision of employee benefit plans, that they’re also outsourcing the liability. The liability exposure in that instance is the decision that’s made to utilize third party services. Fiduciary liability insurance is an indispensable measure to ensure sponsors and their businesses are protected with defense costs and penalty limits.
Indeed, Fiduciary Liability Insurance is the only way plan sponsors can protect themselves, and Colonial’s affordable coverage provides defense costs and penalty limits up to $1,000,000 if you face allegations over an error in plan administration.
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A Very Hefty Bill
Experts point out that because Secure 2.0 “is the aggregated and reconciled product of three bills,” it is quite hefty, weighing in at 400 pages long and encompassing many disparate provisions broadly aimed at increasing participation in employer sponsored retirement plans. The retirement industry generally applauds passage of Secure 2.0, as summed up by this statement from the Investment Company Institute:
Key provisions of this important bill include the promotion of automatic enrollment, which will lead to increased participation rates in 401(k) and 403(b) retirement savings plans. The bill will support people as they look to start saving earlier by allowing employees to receive matching contributions to their retirement accounts based on student loan payments. Additionally, the legislation will help expand pooled employer plans, giving additional opportunities for individuals to access savings tools, and build for a secure financial future.
ERISA specialists at the Wagner Law Group stress “plan sponsors and advisers need to be aware of the various time frames for each specific law and how to manage them accordingly.” Though many of the changes bundled into Secure 2.0, are not controversial, there is a proliferation of technical adjustments plan sponsors will need to attend to in the run up to 2025, when most of the provisions of Secure 2.0 become effective. Plan Sponsor offers an overview of key provisions here.
As plan sponsors dig into the many new compliance issues and timeframes to be addressed and monitored, a best practice is amping up on liability coverage to protect themselves in case of mistakes. Colonial Surety makes it uniquely affordable and easy to do so. Remember, ERISA fidelity bonds, though required by the Department of Labor, do not provide protection for unintended acts—only fiduciary liability insurance does.
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