With the Passage of SECURE 2.0, Is Your Plan Still the Best?

2023-7_With the Passage of SECURE 2.0, Is Your Plan Still the Best

By Ed McClure, CFP®, PPC®

It’s no secret that planning for retirement is a challenge for just about everyone. It can be especially difficult for employers sponsoring a retirement plan in light of ongoing legislative changes such as SECURE 2.0. With over 90 potential plan provisions and effective dates ranging from 2023-2028, employers must balance choosing the right plan for the company, the owners, and the employees involved. 

Even after selecting and implementing a plan, it’s important to review the plan regularly to make sure it’s a good fit for your company. SECURE 2.0 provides an excellent opportunity to not only review the various plan provisions (both required and optional), but also offers the chance for you to reimagine your company’s retirement plan. With the challenging hiring environment we currently face, keeping your top talent is crucial—and your retirement plan is a part of your selling point.

Today let’s review three ways you can evaluate your current plan to determine if any tweaks or wholesale changes need to be made so you can feel confident you have the right plan for your business.

Review Plan Objectives

When you originally created your plan, you likely had a list of objectives you wanted to meet. What were they? Have they been accomplished? More central to a review process is the question “Have those objectives changed?” If they have, it will likely be worth your time to evaluate what type of plan currently makes sense.

Every company has different metrics and goals as you evaluate plans. Key factors to consider include: company size, age of the employees and owners, the goal of the owners, how many participants are currently participating, the cost of the plan, eligibility requirements, reward features (like a company match), does it help attract and retain employees—and more. 

Once you see how your plan’s objectives may have changed over the years, you’ll have a better understanding of the best plan design and provisions to consider going forward.

Review Plan Metrics

When you originally designed and implemented your retirement plan, you had no real-world data to go off of. Sure, you might have been able to see how other companies used certain features of various retirement plans. But you didn’t know how your specific company would respond and utilize it. Now that your plan has been in existence, you can actually see accurate information about it. 

One of the biggest developments to the retirement plan industry over the last 10 years has been the amount of data that recordkeepers in particular have been able to accumulate on plan participants. Key participant information loaded onto the recordkeeper’s website gives recordkeepers the opportunity and capability of building a solid investment and savings profile for each plan participant.

At its core, practically every retirement plan is multigenerational. It’s important to not only recognize this but design and adapt your plan as demographics change. At the plan level, this data is available to help you find key information (e.g., participation and deferral rates segregated by generation within the plan, account balances, investment fund utilization, loan activity and default rates, and hardship distribution levels). Some also can identify participants that have wandered too far away from the best practice investment path. Evaluate these numbers to consider trends or outliers that might skew results too far in a negative direction. 

It’s critical to review the plan’s qualified default investment alternative (QDIA), which is often the target-date fund. The Department of Labor-issued guidance for plan fiduciaries when reviewing the plan’s QDIA includes the importance of establishing and documenting a process for benchmarking these investment funds to the overall demographics of the firm and employee behavior in utilizing them.

Now you have a clearer idea of your plan’s overall objectives, as well as real-world data on how your plan and its available funds and features have been exercised by plan participants. This information is central to the next item, benchmarking your plan against others.

Benchmark Plan Metrics and Features

Comparing your plan’s metrics to those of plans of similar size and industry allows you to identify areas that need improvement and areas that are outperforming—and then set realistic goals for the future. This process can help you feel confident your plan is competitive compared to other employers in your area also vying for talent. 

Benchmarking your plan can also help you see if other plan designs might be more advantageous, considering your current objectives as well as the current plan metrics. Just because you chose this plan design in the past doesn’t necessarily mean it’s the best plan design going forward.

Finally, it’s important to understand that benchmarking your plan from a fee perspective is also a required fiduciary responsibility, at least on a “periodic” basis. While you can benchmark your plan through a “paper-based” model of using outside independent data centers or resources, the best way to understand how much someone wants your business is to conduct an independent request for quote (RFQ) from other retirement plan providers.

Is Your Retirement Plan Meeting Your Objectives? 

Remember that we’ve had two major legislative acts in the retirement plan industry over the past four years (SECURE 1.0 and SECURE 2.0). Along with a renaissance of plan design features, coupled with the emergence of ERISA 3(16) and ERISA 3(38) fiduciary engagements with service providers, these acts can dramatically enhance your current retirement plan benefit to your employees. In addition, they can help lighten the administrative load and mitigate the fiduciary responsibility for plan sponsors.

As litigation continues to surge in the retirement plan space and employees look beyond their wages at the benefits being offered, plan sponsors must review their plan objectives and metrics. Benchmarked against similar plans, should you consider potential plan design changes? In light of recent legislation, this review helps keep your plan optimized for your current business needs, retain and recruit key talent to your company, and reduce overall fiduciary liability exposure.

We’re Here to Help

Are you looking to learn more about how to properly review your current plan? Would you like to feel confident you have the best plan for your future business needs? We at McClure Wealth Management would be honored to see if we can help. 

We’re passionate about helping employers like you build a plan to create the future you and your employees deserve. Give me a call at (760) 607-0611 or email [email protected] to set up a consultation.

About Ed

Ed McClure is a CERTIFIED FINANCIAL PLANNER™ practitioner, Professional Plan Consultant® (PPC®), and founder of McClure Wealth Management. With over 25 years of experience, Ed works with business owners who want to maximize their retirement plan benefits, businesses that need help setting up and managing a 401(k) for their employees, and families who want guidance while planning their futures. He is known for simplifying complicated and intimidating topics and making wealth management concepts easy for others to remember and understand.

Ed has established himself as a trusted resource for business owners and individuals, and his mission is to help his clients achieve the financial independence and well-being they deserve so they can give their time and energy to the people and things they love. He has a bachelor’s degree in finance from the University of Illinois. In his spare time, Ed conducts financial workshops for the Just In Time for Foster Youth organization, which helps equip young men and women as they come out of the foster care system. He also loves to travel and spend time with his favorite people. To learn more about Ed, connect with him on LinkedIn.