2 hot topics that could impact 401(k) plans

Just what is going on with Secure 2.0, whose official name is Securing a Strong Retirement Act of 2022? It’s a potential successor to the SECURE Act, but will the legislation pass? Will it further broaden and ease access to workplace retirement plans? And what’s the story on adding cryptocurrency assets to such plans?

Jennifer Gibbs Swets, a partner and director of relationship management at DWC – The 401(k) Experts in St. Paul, Minnesota, shares her take on these two hot topics. Swets also sits on the legislative relations committee for the American Society of Pension Professionals & Actuaries.

BenefitsPRO: What’s the latest on the passage of Securing a Strong Retirement Act of 2022 after the House in March gave a nearly unanimous blessing with a vote of 414 to 5?

We’re hoping that Congress keeps a focus on Secure 2.0 despite the fact that there are plenty of worthy distractions these days, not to mention plenty of partisan fighting going around. We’re cautiously optimistic that Secure 2.0 will eventually pass, as there is strong bipartisan support for taking action that expands coverage for American workers bringing more people into the private retirement arena.

Round one, we all thought Secure 1.0 was going to pass in the summer of 2019, only to see it delayed until that December. It’s worth noting that even though this piece of legislation also enjoyed bipartisan support, it didn’t pass as a standalone bill – this language was incorporated into the Further Consolidated Appropriations Act, 2020.  Round two, we could easily see Secure 2.0 stall until it finds itself part of a “must pass” bill working its way through Congress.

What provisions within Secure 2.0 are you particularly watching?

First, the potential changes for catch-up contribution. For 2022, the catch-up limit that applies to plan participants over age 50 is $6,500 per year. SECURE 2.0 would increase that catch-up limit to $10,000 per year once a participant gets to age 62 – with that $10,000 limit adjusted for COLA on an annual basis.

This increased catch-up opportunity comes with an asterisk though. Secure 2.0 proposes that all catch-up contributions would need to be Roth contributions as opposed to participants having the option to make these contributions as pre-tax deferrals. This type of change may not be well-received by high earners looking to save as they approach retirement and would also impact the nitty-gritty of plan administration and compliance testing. All in all, this proposed change may not be a complete surprise since Congress has to find a way to pay for the bill.

We’re also interested in the provision that would enable employers to match, within the retirement plan, student loan payments made by employees. This is great from a coverage standpoint, bringing more American workers into the private retirement plan system sooner, but it will also require some strategic thought on how to roll this out from an administrative standpoint. Regardless of those logistical pieces, we love that this expands the number of participants who may receive contributions under 401(k) plans.

The other item that we’re all paying close attention to is related to the long-term part-time employee provision that requires those who work 500 hours for three years in a row to be covered by a plan (for 401(k) purposes). Secure 2.0 proposes a change from three years to two years for this mandatory coverage.  Once again we have a scenario where we’re looking forward to expanded coverage of American workers, but we’re anxious to see regulatory guidance on exactly how this provision – whether two years or the current three-year provision – will be applied.

Tell me your thoughts on including cryptocurrency assets in 401(k) plans.

It’s a timely topic that’s generating a lot of talk right now. Whether you love the idea or not, getting more folks talking about retirement plans, debating fiduciary responsibilities, and taking a hard look at participants’ savings opportunities is a good thing. That said, from a fiduciary standpoint, cryptocurrency seems – at the moment – a risky choice.

In March, the Department of Labor’s Employee Benefits Security Administration issued a release that cautions plan fiduciaries to “exercise extreme care” before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants. Regardless of any personal viewpoints on crypto, as a plan fiduciary I’m inclined to play it safe and follow that advice. Will that be the long term standing of EBSA? Maybe not, as Congress and the SEC seek to implement increased regulations on crypto.

Plan fiduciaries have a duty to ensure that the investment opportunities for their plan are monitored and to act with prudence regarding the appropriateness of investments offered. This feels like a challenge when it comes to crypto, which is where I think EBSA was coming from in March.

There’s a lot of partisan activity related to crypto in retirement plans with some saying EBSA has overreached with their compliance assistance release. I can appreciate differing viewpoints, the importance of diversification of assets, and a willingness to explore new investment opportunities for plan participants – these are all relevant and discussion-worthy. For me though, with the DOL having jurisdiction over plan fiduciaries, I think there’s value in heeding their advice and watching how crypto in plans evolves.