With potential new legislation on the horizon, 2023 will likely be a year that shapes retirement savings and planning for the short- and long-term future.
Along with several other provisions, the passage of SECURE 2.0 would accelerate the number of businesses offering pooled employer plans (PEP), says Michael Majors, vice president of HR Solutions at Paychex. While PEPs have increased in popularity due to the passage of the original SECURE Act in 2020, Majors believes SECURE 2.0 would lead smaller employers who did not originally have the capacity to offer retirement plans, to now provide them.
Previously, PEPs were only offered to employers who offered a 401k plan. Under SECURE 2.0, 403b plans will now be able to participate in multiple employer plans (MEPs) and PEPs, which relieves these businesses of their administrative duties and costs. A 2017 study from Pew Charitable Trust found small businesses have previously cited administrative costs as their main barrier to offering a retirement plan.
“Businesses want a turnkey solution, and PEPs are the only solution that takes administration off the plate of the small business owner, and still fulfills that need to be able to offer that benefit to keep competitive in the marketplace,” Majors said.
If SECURE 2.0 is passed, expect to see 403b employers add PEPs to their plans, says Majors. A 2021 Transamerica Institute survey found that nearly one-third of 401k plans said they would use a PEP if they decided to provide a retirement benefit. It’s likely we can suppose the same from 403b employers.
“We’re going to have a dramatic acceleration of people in this system—both for employers and all of the employees in those businesses now that don’t offer it,” Majors added. “That’s the exciting part of it. More people having a chance of a dignified retirement because of the SECURE Act.”
401k benefits to remain despite market uncertainty
While market uncertainty triggered by COVID-19 caused some plan sponsors to halt 401k matching contributions, Majors doesn’t anticipate the same in the case of a downturn in 2023, in an effort to preserve retention among employees and interest with candidates.
“The labor market is still very tight,” he said. “It’s the most unique environment we’ve ever had, where we have people talking about a national recession, but still needing workers at these companies. I don’t think they would have the luxury of removing the 401k benefit, or removing the match, because they still need the workers.”
401k matches have generally been one of the first benefits to go when employers need to cut costs, said Majors. “In the past when we’ve had a recession, I have seen many businesses pull that as a trigger right away, with some businesses were getting rid of it altogether,” he said.
Instead, as employee expectations continue to shift and as workers demand more from their employers, it’s likely we will see employers continue to offer benefits like 401k matching as a tool for employee retention, Majors explained.
Along with preserving this benefit, employers can encourage their workers to continue adding to their 401k, especially during inflationary periods. With inflation rising, today’s employees will need to save at a higher rate to account for the increase. Even retaining the current rate of contributions would be more impactful than stopping altogether. “Maintain that additional amount from the employer match, because if employees stop doing it in moments of inflation, it’s really going to make retiring a lot harder down the road because they’re going to need more money than they needed before inflation happened,” Majors said.
SEE ALSO:
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
