SECURE Acts Require Prompt Action From Retirement Plan Sponsors

As we await more guidance under the SECURE Act and SECURE 2.0 Act, many defined contribution and defined benefit retirement plan sponsors are continuing the wait-and-see approach toward plan amendments and optional plan changes available.

With the recent further delay of the amendment deadline to 2026 for most plans, plan sponsors may want to consider whether there is more to do than simply wait and see.

Implementing 2024 Options

An immediate question to consider is whether to offer any of several optional changes that became effective on Jan. 1, including:

• Student loan matching provisions
• Emergency savings account provisions
• Terminal illness distributions
• Emergency personal expense distributions
• Domestic abuse distributions
• Higher automatic cash out limits

These optional changes trigger mixed reactions from plan sponsors. Some are reluctant to increase access to retirement savings that may reduce funds available during retirement.

Others looking for ways to increase plan participation may embrace increased flexibility for participants to access their retirement savings in such hardship-like situations, such as when funds are needed for those experiencing a terminal illness, domestic abuse, or other emergencies.

Regulatory Guidance

Regulators issued guidance addressing most mandatory provisions that have taken effect under SECURE and SECURE 2.0 but have yet to provide regulations regarding recovery of overpayments, which became effective immediately upon SECURE 2.0’s enactment. We are also still awaiting technical corrections from Congress to address items such as Roth catch-up changes that the IRS will begin enforcing in 2026.

There is less guidance on optional provisions—even for those that became effective Jan. 1. For example, while the most recent IRS grab-bag guidance addressed terminal illness distributions, it didn’t address emergency personal expense distributions or domestic abuse distributions.

As a result, uncertainty remains about the complexity of administering the new changes, such as the increased cash out limit. The IRS’s substantive guidance to date sometimes reaches unpredictably beyond the language in the statute. Further, subsequent IRS interpretations of statutory provisions could require further plan changes or employee communications, resulting in the potential for backtracking, cutbacks, and employee relations issues.

Recognizing the need for more guidance, the IRS further extended the plan qualification amendment deadline to 2026 for most plans. This extension doesn’t apply when adopting a new plan or terminating a plan, which require plan language that conforms to the new statutes at the time of adoption or termination.

As a result, some plan sponsors must give up the wait-and-see approach and proceed with plan amendments for all mandatory provisions and any applicable optional provisions.

Recordkeeping Systems

Another reason for the wait-and-see approach is that many recordkeepers aren’t yet able to administer the new optional provisions.

Without regulatory guidance, recordkeepers are reluctant to program their systems to implement the new provisions. Guidance may take an unexpected approach and require costly reprogramming of administrative systems.

Communicating With Employees

Although there may not be a legal obligation to amend the plan for SECURE and SECURE 2.0 for several years, a plan administrator may want to think twice about taking a wait-and-see approach on communicating about changes to the plan.

Employee Retirement Income Security Act fiduciaries must inform participants about material facts affecting their benefits. Courts have described this as a duty to communicate fully and accurately all information that may be relevant to the plan’s participants.

When it comes to plan changes, courts have determined that this duty is triggered when the plan sponsor is seriously considering making the change. This means that plan fiduciaries may have a duty to communicate changes, even if plan documents won’t be amended until 2026.

Under Department of Labor regulations, no summary plan description or summary of material modifications is required until 210 days after the plan year in which amendments are adopted. Due to the extended amendment deadline, it could be many years after changes have been implemented before a summary plan description or summary of material modifications
is required for changes.

Plan administrators and recordkeepers will typically provide informational communications as new provisions take effect but may want to consider whether to update other documents for consistency to avoid participant confusion. For example, plans must issue a 402(f) notice with all plan distribution requests. This notice provides information regarding the taxation and rollover options for distributions from qualified plans.

Regulators are due to provide comments to the model notice by June 29, which should address new distribution provisions, including mandatory changes to required minimum distributions for withdrawing retirement funds.

Using the current model notice in the meantime may confuse participants. Plan administrators may want to weigh whether updating these notices or issuing separate communications to participants is appropriate to meet their fiduciary duty.

Plan sponsors that intend to adopt optional provisions once guidance is available may want to inform plan participants in advance. If a participant asks about the potential plan change, the plan fiduciary may have an obligation to disclose any change under serious consideration. This can be a tricky area for plan fiduciaries to navigate, so a well-developed communications plan is important to ensure consistency and accuracy regarding upcoming plan changes.

Next Steps

Given the lack of guidance and administrative support, many plan sponsors may hold off on amending their plans right now. But the fiduciary duty to communicate accurately, and the potential for employee confusion, may prompt plan administrators to consider abandoning the wait-and-see approach in favor of a comprehensive, well-thought-out communication program. This could highlight how the SECURE Act and SECURE 2.0 Act provisions may impact plan participants.

In that case, proceeding with optional amendments to ensure consistency and avoid confusion prior to the IRS amendment deadline may make more sense than continuing to wait and see, even if plan documentation eventually needs clarification.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Stephanie A. Smithey co-chairs Ogletree Deakins’ employee benefits and executive compensation practice group, focusing on ERISA, MPPAA, HIPAA, COBRA, PPACA, the Internal Revenue Code, and other federal and state laws.

Carly E. Grey is shareholder in Ogletree Deakins’ employee benefits and executive compensation practice group, focusing on retirement plans, health and welfare plans, executive compensation arrangements, and fringe benefits.

Write for Us: Author Guidelines