As qualified retirement plan sponsors evaluate the various new distribution options available under SECURE 2.0 (read our overview here), it is worth asking: What is your company’s retirement philosophy? The answer to this question will help guide plan sponsors (including, where applicable, the benefits committee) in determining what changes, if any, they’d like to make to their plans.
As we’ve been advising and discussing the new SECURE 2.0 distribution options with our clients, there are three different philosophies we’ve seen:
Philosophy #1: Retirement Accounts Are for Retirement.
Under this philosophy, plan sponsors intend for their retirement plans to be used by their employees in retirement. Although some of the new SECURE 2.0 distribution options are meant to address pressing societal issues, retirement accounts sponsored by the employer are intended to set employees up for retirement. Plan sponsors in this group may already offer limited in-service distribution options and are not interested in adding any of the new SECURE 2.0 distribution options. Further, plan sponsors in this group may be encouraged to discuss other benefits available for these pressing societal issues (e.g., adoption assistance).
Philosophy #2: Participants Can Make Their Own Choices.
Under this philosophy, plan sponsors leave it to the participant to decide how best to prepare for their financial future. SECURE 2.0 was passed by Congress and made new distribution options available to retirement plan participants. Adding these new distribution features to the retirement plan does not require a participant to elect any of the new distribution options, but the participant is able to make these choices for themself. Retirement benefits are part of the participant’s compensation after all. Plan sponsors in this group will likely add in all of the new distribution options once the plan’s recordkeeper is able to administer the new distribution option.
Philosophy #3: Pick and Choose.
The final philosophy falls between philosophy #1 and #2. These plan sponsors are open to adding some of the new SECURE 2.0 distribution features, but not all. They are evaluating requests made by their plan participants with regard to the new distribution options. These plan sponsors will choose to implement some of the new distribution features and wait to see how the implementation of other distribution options impacts the early adopter plans under philosophy #2.
As your company evaluates what SECURE 2.0 distribution features to add to your retirement plan, it is worth considering your retirement philosophy to guide your decision making process. Remember that distribution features can be added in the future. If you have any questions, please reach out to your Faegre Drinker benefits counsel.
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