The Consolidated Appropriations Act, 2023 (CAA 2023), signed into law on December 29, 2022, includes the long debated and expected changes to employer-sponsored benefit programs known as SECURE 2.0.
While there are over 90 provisions addressed in the new law, this article is one in a series that looks for common themes among the provisions.
Here are the seven SECURE 2.0 required reports or actions to be taken or that are due from the federal agencies that provide insight to key stakeholders about the state of U.S. retirement policy and the need for such guidance.
The reports, when published, have no authority as definitive actions taken by a plan sponsor to comply with the formal guidance that only the U.S. Department of the Treasury (Treasury), the U.S. Department of Labor (DOL), or the Pension Benefit Guaranty Corporation (PBGC) can issue. However, it is common for formal agency guidance to rely on some of the conclusions in these types of reports and include some of them in regulations.
For example, the fee disclosure report that will be issued from the DOL is likely to be an update to 2012 ERISA disclosure requirements, which points back to a 2007 proposed DOL rule, which in turn references a 2004 report by the DOL’s ERISA Advisory Council.
This is the list, with the relevant section of the SECURE 2.0 Act (the Act) in parentheses.
- Establishment of a national Retirement Savings Lost and Found database. (Section 303)
- Performance benchmarks for asset allocation funds. (Section 318)
- Review and report to Congress relating to reporting and disclosure requirements. (Section 319)
- Treasury guidance on rollovers. (Section 324)
- Report to Congress on section 402(f) notices. (Section 336)
- Defined contribution plan fee disclosure improvements. (Section 340)
- Report by DOL of the impact of inflation on retirement savings. (Section 347)
The remainder of this article summarizes each of these seven items and provides initial insight into the issues to be considered by plan sponsors.
National Retirement Savings Lost and Found Database (Section 303)
One issue upon which there is universal agreement is that the retirement benefit earned by employees over the course of their work lives should be paid to and received by such employees to help finance their post-work wonder years. Unfortunately, every year too many of these employer-provided nest eggs remain “unhatched” as thousands of former employees reach retirement age while their benefits remain out of reach. The blame for this failure to launch such benefits to their intended recipients may rest with the employers (e.g., relocation of the company, company name change, merger with a different company, or recordkeeping issues) or the employees themselves (e.g., the employers who are ready, willing, and wanting to pay benefits to retirees who cannot be located because they changed their names and/or addresses). In an effort to address this growing problem, Section 303 mandates that the DOL establish a national online searchable lost and found database no later than two years after the date of enactment of this Act (i.e., by December 29, 2024). As a result, retirees who may have lost track of their pensions or 401(k) plans will now have an easily accessible source to search for the contact information of plan administrators. This new database is intended to cover all tax-qualified defined benefit (DB) and defined contribution (DC) plans subject to ERISA vesting provisions.
Performance benchmarks for asset allocation funds (Section 318)
As the universe of investment alternatives has expanded over time, so has the diversity of retirement plan portfolios. However, up until now, the DOL’s participant disclosure rules have not kept pace with these developments in its effort to supply certain performance and benchmark data to participants about their investment options.
Prior to passage of the Act, the DOL’s participant disclosure rule required that each designated investment alternative’s historical performance be compared to an appropriate broad-based securities market index. This rule did not adequately address increasingly popular investments like target date and lifecycle funds that include mixes of asset classes, thereby placing plan sponsors in the difficult position of attempting to illustrate “apples to oranges comparisons.” By no later than two years after the enactment of the Act (i.e., by December 29, 2024), the DOL is to issue regulations that provide guidance on developing a blend that uses a mix of asset classes that can be benchmarked against a blend of broad-based securities market indices, provided:
- The index blend reasonably matches the fund’s asset allocation over time.
- The index blend is reviewed at least once a year and updated if needed.
- The index blend is communicated to participants in a manner that can be understood by the average plan participant.
- The underlying indices are appropriate for the investment’s component asset classes and otherwise meet the regulation’s conditions for index benchmarks.
To evaluate whether the new regulation achieves the desired results, Section 318 also requires the DOL to report to Congress on the effectiveness of its benchmarking no later than three years after the applicability date of the regulation.
- NOTE: The plan administrator may, but is not required to, follow the new benchmarking.
Review and report to Congress relating to reporting and disclosure requirements (Section 319)
Qualified plans are currently required to file numerous reports with federal agencies (e.g., Form 5500) and provide participants with a plethora of notices (e.g., annual funding notice). Given the multitude of these requirements as well as the time and expense it takes to comply with them, any mention of even the possibility of consolidating, simplifying, standardizing, and improving these requirements rings like magnificent music to the ears of plan sponsors. On that note, Section 319 directs the Treasury, DOL, and PBGC to review reporting and disclosure requirements for pension plans as soon as practicable after enactment of the Act. In addition, these agencies will further be directed to make recommendations to Congress to consolidate, simplify, standardize, and improve such requirements no later than three years after the date of enactment of the Act (i.e., by December 29, 2025).
Treasury guidance on rollovers (Section 324)
Like the above-described Section 319, Section 324 also aims to please via simplification. In this case, the rollover process is the target as Treasury is tasked with developing sample and procedures for direct rollovers in the hope that such standardized forms might simplify, standardize, facilitate, and expedite the rollover process for both plan sponsors and participants. The intent is to develop forms that that may be used for the following:
- Rollovers of eligible rollover distributions from employer-sponsored retirement plans to another such plan or IRA
- Trustee-to-trustee transfers of amounts from one IRA to another IRA
Report to Congress on Internal Revenue Code Section 402(f) notices (Section 336)
In the “look before you leap” category, Section 336 does not currently require any changes to current rules. However, it does pave the way for future potential revisions to the familiar 402(f) notices. Plan sponsors are required to give this notice to retirement plan participants who receive a distribution that is eligible for rollover to another tax-preferred retirement account. The notice must describe distribution options and tax consequences. Section 336 requires the U.S. Government Accountability Office (GAO) to issue a report to Congress on the effectiveness of Section 402(f) notices within 18 months after the date of enactment of the Act.
Defined contribution plan fee disclosure improvements (Section 340)
Following up and building on a report issued in July 2021 by the GAO entitled “401(k) Retirement Plans: Many Participants Do Not Understand Fee Information, but the DOL Could Take Additional Steps to Help Them,” Section 340 requires the DOL to review its fiduciary disclosure requirements in participant-directed individual account plan regulations. A report must be submitted to Congress on such findings, including recommendations for legislative changes, within three years of the enactment of the Act (i.e., by December 29, 2025).
Report by DOL of the impact of inflation on retirement savings (Section 347)
Most plan participants are aware that their dollars today do not go as far as they did 20 years ago (or even 10 or five years, for that matter); however, do they factor in future inflation when making their retirement plan decisions? Whether determining how much to contribute to their 401(k) plans or their investment allocations, the prospect of future inflation is a factor that must be considered. Congress itself also needs to weigh this factor before debating any future legislation affecting qualified plan limits. Accordingly, Section 347 directs the DOL, in consultation with Treasury, to study the impact of inflation on retirement savings and submit a report to Congress on the findings of the study within 90 days of the enactment of the Act (i.e., by March 29, 2023).
Please contact your Milliman consultant for additional information that affects your employer benefit programs.