Navigating SECURE 2.0 confusion: collaboration between SMBs and third-party administrators

It’s been nearly two years since SECURE 2.0 was enacted, yet many employers still have concerns and questions. SECURE 2.0 was designed to enhance retirement planning for businesses of all sizes, especially small and medium-sized businesses (SMBs). However, many employers are still unsure about its provisions. A recent UBS report reveals that less than half of employers are aware of which provisions in the retirement legislation are mandatory and which are optional. This is concerning, as a younger, financially savvy demographic is eager to plan for retirement, while an aging population is equally keen on securing their retirement plans. 

Adding to the complexity, the Department of Labor (DOL) recently finalized its Retirement Security Rule, which could affect how employers manage retirement plans and fulfill their responsibilities. Additionally, the DOL proposed procedures for the Retirement Savings Lost and Found database, enabling individuals to search for missing retirement plan benefits. While the proposed procedures place the burden of data collection and reporting on plan administrators, the finalization of these proposals will determine their full impact on small business owners.

Overall, this confusion among SMBs can create challenges for third party administrators (TPAs), affecting their workload and possibly hindering the ability to remain compliant. To ensure that SECURE 2.0 is implemented smoothly and without confusion, both SMBs and TPAs need to adopt a collaborative approach. Below are some key considerations and guidance for both parties.

How employer’s master retirement planning and stay ahead

Employers who establish and maintain retirement plans, also known as plan sponsors, need to stay informed about regulatory updates. A reliable source for information is the DOL website, which offers comprehensive details about SECURE 2.0 at DOL SECURE 2.0 Act of 2022.

Staying informed is essential, but it’s only one part of the puzzle. Understanding and ensuring that the entire team comprehends the information is crucial. Training and workshops are important for HR personnel and relevant staff to fully grasp the changes brought by SECURE 2.0. These sessions provide in-depth knowledge about new retirement plan features and compliance obligations. It’s also important to communicate these changes clearly to plan sponsors. Plan sponsors should take the necessary steps to inform employees about the updates and benefits of the new retirement plans. Additionally, engaging with employees to gather feedback on their understanding of SECURE 2.0 can help identify any knowledge gaps and create a plan to reduce confusion. Employers should encourage open communication to address any concerns or questions regarding retirement plan updates, ensuring that all employees are well-informed and confident about their retirement planning options.

Once there is a clear understanding of the SECURE 2.0, plan sponsors should leverage advanced technologies to streamline retirement plan management and enhance employee engagement. Modern financial technologies offer easy access to retirement resources and educational materials, empowering employees to make informed decisions about their future. Retirement plan management software supports comprehensive administration, allowing for holistic monitoring of participant management and compliance tracking. Each participant’s needs are unique, and automated platforms like robo-advisors can provide personalized investment advice tailored to individual data. This customization ensures that employees receive investment guidance that aligns with their specific financial goals and lifestyle, ultimately improving their retirement outcomes.

Despite diligent efforts, plan sponsors may still make mistakes. Unfortunately, they can be personally exposed to third-party claims for not meeting fiduciary obligations. Some plan sponsors mistakenly believe that by outsourcing the administration, oversight, or supervision of employee benefit plans, they are also outsourcing liability. However, the liability remains with the decision to use third-party services. 

Managing a retirement plan involves significant risks for plan sponsors. They can face numerous challenges, including lawsuits from beneficiaries who claim fiduciary duties have been breached due to mismanagement of plan assets, failure to provide adequate information, or reckless investment choices. The Employee Retirement Income Security Act (ERISA) sets stringent standards for fiduciaries, and non-compliance can lead to severe penalties and personal liability. To practice proper risk management, plan sponsors should consider fiduciary liability insurance as an essential safeguard for themselves and their businesses. Fiduciary liability insurance is designed to protect both employee benefit plan decision-makers and their employers. It offers defense coverage and funds settlements or judgments for liabilities under the Employee Retirement Income Security Act (ERISA), as well as allegations related to administrative mistakes in managing internal employee benefit plans.

Understanding the role of TPA’s role and their support with SECURE 2.0

TPAs hold the crucial responsibility of managing operations, recordkeeping, and ensuring that the retirement plans comply with regulatory requirements. It’s important to recognize that the exposure of TPAs differs significantly from that of employers. TPAs serve as professional advisors to potentially numerous employers, not just one, exposing TPAs to diverse liabilities and complexities. With their role so focused on employee retirement planning, TPAs can play a vital role in day-to-day administration, including understanding new or updated regulations and making necessary plan updates. TPAs are an invaluable source of knowledge and can serve as a reliable resource for plan sponsors, providing expert guidance on fiduciary responsibilities, plan governance, investment options, and other aspects of retirement plan management impacted by SECURE 2.0. 

To ensure the smooth implementation of SECURE 2.0 provisions, especially those that are mandatory, plan sponsors and TPAs should maintain open lines of communication. This collaboration will help clarify and implement the regulations without ambiguity. 

When plan sponsors collaborate with TPAs, they prioritize communication and seek partners who conduct regular compliance audits to ensure adherence to SECURE 2.0 provisions. These audits involve thorough reviews of plan operations, documentation, and processes to verify compliance with the requirements. TPAs examine various aspects, including participant eligibility, contribution limits, automatic enrollment features, and investment options. By performing these audits regularly, TPAs can proactively identify and address potential compliance issues before they escalate, promptly implementing corrective actions. This reduces the risk of penalties and legal liabilities for plan sponsors.

As TPAs specialize in providing administrative services for retirement plans, they should consider obtaining the right liability insurance to protect against claims arising from their professional services. The critical insurance for TPAs is professional liability or errors and omissions liability insurance, and it is pivotal that such insurance for TPAs does not contain an exclusion for liability under ERISA or other similar rules and regulations. Unlike plan sponsors, TPAs are primarily responsible for plan administration rather than managing plan assets or making investment decisions. Professional liability insurance is specifically designed to mitigate risks associated with administrative errors and omissions, offering crucial protection for TPAs in their role.

Decoding SECURE 2.0 together

As 2025 approaches, it marks a significant milestone with most provisions of SECURE 2.0 coming into effect. The successful implementation of SECURE 2.0 demands a collaborative effort between employers and TPAs. Clear communication and proactive support from TPAs are essential for helping small businesses navigate these changes effectively. By thoroughly understanding the legislation, evaluating and updating retirement plans, and leveraging modern tools and expert advice, both employers and TPAs can ensure compliance with regulatory requirements and deliver valuable retirement benefits to employees. Additionally, both parties should consider appropriate liability insurance to protect against potential risks associated with managing retirement plans. Ultimately, this collaborative approach not only enhances retirement security but also strengthens overall financial well-being for the workforce.

Richard Clarke is Chief Insurance Officer at Colonial Surety Company.