Among the good that comes with SECURE 2.0’s passing is its projected long-term impacts on retirement for millions of Americans.
The expansion of coverage and access—ranging from automatic enrollment, emergency savings features, part-time worker 401(k) eligibility, and 403(b) eligibility to multiple employer plans (MEPs) or pooled employer plans (PEPs)— is anticipated to lead a higher rate of workers to save for their future and retirement.
Starter 401(k)
One provision in SECURE 2.0, the starter 401(k), simplifies the path for small business employers wanting to offer a workplace retirement plan with zero out-of-pocket costs. With this provision, small businesses without a workplace plan can offer a starter 401(k) plan or a safe harbor 403(b) plan and automatically enroll eligible employees at 3%. Employers are not required to offer contributions, and the plan would not mandate year-end testing, thus reducing cost and stress on the employer side (two likely indicators for not offering a workplace plan in the first place). Research from the American Retirement Association (ARA) found nearly 19 million additional workers will have access to workplace-based retirement plans thanks to the starter 401(k).
“Coming from a background where I work with a lot of small businesses, no matter how simple we think retirement plans are, it’s really difficult for a small business owner to tackle and hard to understand,” said Joe DeBello, vice president of retirement at OneDigital. “ The starter 401(k) doesn’t just add a cost-effective option, they can put a plan in place, offer a contribution, hire a financial advisor, and essentially do it at zero out-of-pocket costs with the new tax credits.”
403(b) MEPs and PEPs
DeBello also spotlights the 403(b) plan provision as another sizable impact from SECURE 2.0. The new legislation expands from the original SECURE Act, to now allow 403(b) plans to participate in MEPs and PEPs and provides relief from the “one-bad-apple” rule. The aim is to eventually even 403(b) plans with 401(k)s and offer more retirement savings options to the former.
The original SECURE Act allowed 401(k) plans to join MEPs or PEPs, but DeBello believes the impact was more minimal than defiant due to existing fee compression and automation in 401(k) plans. However, when it comes to 403(b) plans, those are in a whole different ballpark. “When you look at the 403(b) marketplace, that’s an area where fee compression hasn’t taken place, there are fewer vendors available, less innovation on the platform, so I think PEP and MEP inclusion will have a bigger impact in that area than it even did in the 401(k) space,” he said.
Helping underserved workers
Whether it’s automatic enrollment or part-time worker eligibility, it’s no denying that provisions in SECURE 2.0 are likely to assist underserved populations that have historically been denied adequate savings options. According to research by Catalyst, a global non-profit, in 2021, 59% of women were part-time workers and 67.7% were part-time workers in low wage jobs.
Already heavily impacted by the COVID-19 pandemic and existing low wage gaps, almost half of women barely saw themselves retiring until their 70s—or if at all. The part-time eligibility provision in SECURE 2.0 offers accessibility to a workplace plan and gives long-term workers a vehicle to effectively save for the future. “When you have a system today that essentially allows employers to keep long-term, part-time employees, this unfairly penalizes females in our country, which only widens the wealth gap,” said DeBello. “By allowing this long-term, part-time provision, it’s going to help level the playing field.”
Disproportionately impacted communities like Black and Latinx workers have also historically not had access to workplace retirement plans. By mandating automatic enrollment in workplace plans, this eases the path for employers to offer plans and incentivize workers to save, added DeBello. While it’s not the curable solution to lessen the wealth gap or racial and societal disparities, it’s a start at helping workers build a retirement future.
“There are a lot of pieces in the legislation that address, whether it be aspects of expanding coverage, to employees who don’t have access to plans, and then making the experience better for an employee or participant perspective, it hits on all those areas,” said DeBello. “They really took a big step forward in leveling the playing field for those underserved populations.”
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