Plan consultants can become go-to resources on retirement reform 

As a series of retirement reforms known as Secure 2.0 picks up steam and gathers rare bipartisan support, consultants who get up to speed on the proposed legislation have an opportunity to differentiate themselves in the market.

Bills coming from the House and Senate expand on the 2019-enacted Setting Every Community Up for Retirement Enhancement (SECURE) Act and include provisions on auto-enrollment, tax credits for employers offering plans and measures aimed at helping workers who started saving for retirement later in their careers.

They also include a number of changes not-for-profit plan sponsors will welcome as they seek to improve efficiency and cost and enhance options and outcomes for participants.

With bill passage possible next year, here’s a brief look at four key elements sponsors might find particularly helpful. Consultant familiarity with these areas will be essential and also provides an opportunity to bring consultative value, with a proactive approach, to both your existing clients and prospects.

Making plan merging easier

First, Secure 2.0 would allow 401(a) and 403(b) plans to be merged without having to terminate one plan to start another and without triggering a taxable event for participants. If you work in the not-for-profit space, chances are, you have clients who have been asking for such a change for years. The costs and oversight challenges associated with operating two separate plans burden many employers and can create confusion for participants.

Merging plans could reduce legal and fiduciary complexity, while maintaining a robust retirement plan for employees. Yet plan sponsors thinking about merging plans will also need to consider key questions, including which rules will govern the newly combined plan and how to ensure participants’ assets are transferred smoothly, with all of the necessary information and consent.

Put simply, while this change may be welcome, it will require careful evaluation and planning from plan sponsors, with insight and guidance from plan consultants who have expertise in the nuances. You should be ready to respond to plan sponsor questions and also bring questions to clients who may be unaware of their opportunities.

Collective Investment Trusts

The second major change under consideration in Secure 2.0 is allowing Collective Investment Trusts (CITs) as an investment option in 403(b) plans. We’ve seen CITs grow in popularity in the 401(k) and 401(a) space for years, but they haven’t been allowed in 403(b) plans because, as unregistered investment vehicles, they don’t meet statutory requirements.

CITs are in some ways similar to mutual funds and are often viewed as a lower-cost option for participants. In an age when cost is a paramount issue for plan sponsors and consultants exercising their fiduciary responsibilities, lower-cost investment options will be welcomed by many employers.

Yet CITs also pose challenges that sponsors and their consultants will have to address, including limited transparency to participants and legal contracting work that is very different from that associated with a mutual fund. Cost is an important factor in plan menu design, but it isn’t the only consideration. Investment committees will need clear guidance about the potential benefits and drawbacks of incorporating CITs into a 403(b) plan, and employees whose plans add CIT options will need extensive education about what CITs are, how they work, and how they differ from mutual funds.

Creating multi-employer 403(b) plans

A third change would authorize the creation of multi-employer 403(b) plans along the same lines as now exist for 401(k) plans. The 2019 SECURE Act expanded the use of multiple employer plans (MEPs) by allowing unrelated employers to band together in a pooled employer plan (PEP) with protections for other employers if one employer runs afoul of certain rules. The original legislation did not extend the same option or protections to organizations sponsoring 403(b) plans. Secure 2.0 would equalize treatment between the two types of accounts.

Over the past several years, there has been some significant interest in 403(b) MEPs, and this provision would make MEPs available to unrelated employers, especially for small to mid-sized 403(b) plans.

The advantages of a 403(b) MEP for smaller plan sponsors and their employees could be substantial. Smaller plans could join together, combine assets, and gain access to lower-fee asset classes and reduced administrative costs. They could also streamline fiduciary obligations.

These are likely to be popular options for small not-for-profit organizations. As with the other potential reforms mentioned here, the ability to establish 403(b) MEPs would present significant opportunities for plan consultants who can work with multiple small employers to navigate the administrative challenges of establishing and running a MEP.

Attacking student debt

Finally, one of the most-talked-about aspects of Secure 2.0 is a provision that would allow employers to match an employee’s student loan payments with a retirement plan contribution. The student debt crisis is well-documented, and employers want to be part of the solution. Since the Treasury Department issued its Abbott private letter ruling in 2018, many employers have asked about developing an arrangement to help their employees prepare for retirement while paying down their student loans.

If Congress makes it possible, employers will be eager to adopt these arrangements as they seek to attract young talent who may have significant college debt. But they will also have questions. While the concept of matching student loan payments with retirement plan contributions is relatively straightforward, operationalizing the arrangement will rely on regulations and procedures that haven’t been fully flushed out. Participants will also want to understand the mechanics of such an arrangement.

Plan consultants will play a vital role in helping sponsors, participants and recordkeepers implement and benefit from a very popular reform.

Consultants can make the difference

Each of these four potential reforms is being discussed right now, not just on Capitol Hill but also among not-for-profit plan sponsors eager to find ways to improve their retirement offering while reducing costs and streamlining administration and fiduciary obligations. You may already be having these conversations with your clients. If you’re not, your competitors surely are. It behooves consultants to understand the reforms being proposed and stay on top of the legislative and regulatory developments.

Once these proposals become law, plan sponsors will have even more questions and will have to weigh the pros and cons of multiple decisions. Plan consultants will have a unique opportunity to advise, educate, inform, influence decisions, and ultimately, demonstrate value to clients.

David Swallow is head of TIAA Consultant Relations.