For Defined Contribution Plan Sponsors
TRENDS IN DC PLANS
THE CASE FOR ALTERNATIVE INVESTMENTS IN 401(K) PLANS
THREE TIPS FOR STRATEGIC USE OF AN HSA
EMPLOYEE ENGAGEMENT RESOLUTIONS ALSO
16
Plan Design Trends in DC Plans
Participation and savings rates increased in 401(k) plans last year, while they pulled back in 403(b) plans (a reversal of trends from the previous year) according to 2024 annual survey reports from PSCA.
by Hattie Greenan
UPCOMING DATES & EVENTS
2025 National Conference Save the Date: April 30 - May 2, 2025, Las Vegas, NV
Upcoming Webcasts: New Year, New You: Good Fiduciary Governance Habits to Get Your Plan in Shape January 21, 2025, 2PM Eastern
Alts Rising: The Case for Alternative Investments in 401(k) Plans
Alternative investment diversification and risk-adjusted return benefits are widely known, as are their complexity and cost. The debate is heating up. We take a look.
by John Sullivan
APRIL 30 - MAY 2
LAS
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by Hattie Greenan
Plans Past and Present (and Future)
Retirement plan participation mostly held steady in 2024 as employers focused on plan design changes, mandatory and optional, that are beginning to reshape the future of the retirement system – what will plans look like in a year, or five?
AS 2024 COMES TO A CLOSE AND WE THINK ABOUT RETIREMENT PLAN TRENDS THIS YEAR AND WHAT IS TO COME – IT FEELS LIKE THE RETIREMENT SYSTEM IS UNDERGOING A BIT OF A METAMORPHOSIS AS LEGISLATION ENACTED TO HELP IMPROVE THE RETIREMENT SECURITY OF ALL AMERICANS BEGINS TO RESHAPE THE SYSTEM AS WE KNOW IT. It will not be quick, but as SECURE Act provisions begin to take hold, state run plans increase in availability and use, and *something* is done about Social Security, options people have to save for retirement, and receive income in retirement, may very well look quite different in another five years than they do today.
For now, PSCA’s four annual surveys generally showed steady participation and contributions rates across the board this year, while organizations worked to implement mandatory and
WHETHER YOU ANTICIPATE 2025 WITH OPTIMISM OR DREAD (THERE SEEMS TO BE LITTLE ROOM IN BETWEEN THESE DAYS) MAY VERY WELL DEPEND ON YOUR POLITICAL VIEWS BUT EITHER WAY, THERE WILL BE CHANGES THAT IMPACT YOUR RETIREMENT PLAN.
optional provisions of both SECURE Acts. We are seeing increased use of plan design features to both increase participation and savings rates, but also to provide flexibility to employees and how they choose to prioritize their saving and spending.
In this issue of Insights we look deeper at these trends, take a deep dive into the world of alternative investments, look at investment considerations in NQDC plans, explore strategic use of Health Savings Accounts to save for retirement, and look at ways to engage employees in their benefits in 2025, and more.
Whether you anticipate 2025 with optimism or dread (there seems to be little room in between these days) may very well depend on your political views but either way, there are certain to be changes coming, many that will impact your roles in HR and your retirement plans.
PSCA and ARA will be working in Washington to protect the legislative advancements we have made, and continue to advocate in the best interest of retirement savers.
Look for continued education and resources from PSCA in the new year with an expanded slate of webinars, revamped tool(k)its, continued research, and well as all the latest on everything retirement-related at our National Conference in May. Happy Holidays, and Happy New Year!
Editor
by Will Hanson
2025: The Year of the HSA
HSAs are posed for legislative reform next year, expanding access to these accounts and raising contribution limits.
HEALTH SAVINGS ACCOUNTS (HSAS) HAVE BECOME AN INCREASINGLY IMPORTANT PART OF AMERICA’S HEALTHCARE LANDSCAPE SINCE THEIR INTRODUCTION THROUGH THE MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND MODERNIZATION ACT OF 2003.. These tax-advantaged accounts were designed to help individuals with high-deductible health plans save for medical expenses while offering unique triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses (remember my previous article on some new questionable practices on what is “qualified”).We dug a bit deeper into what specifically from SECURE 2.0 was of interest to you and a number of respondents referenced the many Roth provisions. This includes the mandatory provision that catch-up contributions must be Roth for individuals earning over a certain income threshold as well as the optional provision that allows for greater catch-up contributions for certain age groups.
FOR
NEARLY TWO DECADES FOLLOWING THEIR CREATION, HSAS SAW MINIMAL LEGISLATIVE ENHANCEMENTS DESPITE THEIR GROWING POPULARITY.
When HSAs first came onto the scene during President George W. Bush’s administration, they represented a fresh approach to healthcare savings. Unlike their more restrictive cousin, the Flexible Spending Account (FSA), HSAs offered something revolutionary – the ability to keep your savings year after year, letting you build a real nest egg for future medical expenses (or for retirement). This was a game-changer for how Americans could think about saving for healthcare costs.
For nearly two decades following their creation, HSAs saw minimal legislative enhancements despite their growing popularity. The landscape remained largely unchanged until the CARES Act of 2020, which finally expanded HSA-eligible expenses to include over-the-counter medications. While the IRS has consistently adjusted contribution limits for inflation – reaching $4,300 for individual coverage and $8,550 for family coverage in 2025 - substantial policy improvements remained elusive.
The limited evolution of HSAs can be traced to fundamental policy differences about their role in the healthcare system. Some policymakers have expressed concerns that these accounts, paired with high-deductible health plans, might discourage necessary medical care among certain populations. Others view HSAs as an essential tool for healthcare consumerism and long-term savings. These competing perspectives have created a legislative stalemate, preventing meaningful expansion of HSA benefits and accessibility.
With Republican control of both the House and Senate in 2025, HSAs are positioned for significant enhancement. Several proposals already in motion include: - Increasing annual contribution limits beyond inflation adjustment, allowing HSA funds to pay health insurance premiums, expanding HSA eligibility to Medicare beneficiaries and de-linking HSAs from the High Deductible Health Plan requirement The timing for some of these changes could be debated early in the next Congress if Republicans decide to include HSA legislative changes in their tax proposals. HSAs’ unique position at
the intersection of healthcare and retirement savings makes them an attractive target for reform. Their potential role in addressing long-term healthcare costs, particularly in retirement, aligns with broader policy goals across the political spectrum, but the exact science behind supporting long-term healthcare has differed among the political parties. With one party in control of the legislative process, with some restrictions, 2025 could be the year of the HSA.
As we approach 2025, the retirement industry should closely monitor potential HSA reforms. Any significant enhancements to these accounts could create new opportunities for plan sponsors and participants alike, potentially reshaping how Americans save for both healthcare and retirement needs. Of course, PSCA will continue to monitor any developments and provide you with advocacy (let us know what changes you want to HSAs), insights (state of play), and education (materials if any changes are made). Happy 2025!
Will Hansen is the Executive Director for Plan Sponsor Council of America.
2024 403(b) Plan Survey
APRIL 30 - MAY 2
NQDC
by Matt Maier
Investment Options in NQDC Plans
What should plan sponsors consider when selecting investment options in an NQDC plan – “just mirror the 401(k) line-up?” Maybe…maybe not.
NONQUALIFIED DEFERRED COMPENSATION (NQDC) PLANS OFFER KEY EMPLOYEES THE ABILITY TO DEFER INCOME BEYOND THE LIMITS OF QUALIFIED PLANS LIKE 401(K)S. HOWEVER, SELECTING THE INVESTMENT OPTIONS FOR NQDC PLANS PRESENTS UNIQUE CHALLENGES FOR PLAN SPONSORS.
While it may seem convenient to mirror the fund lineup of a 401(k) plan, this approach is not always optimal. Plan sponsors must carefully evaluate the specific goals, regulatory environment, and participant needs of the NQDC plan to ensure appropriate fund selection and oversight.
PARTICIPANT DEMOGRAPHICS AND INVESTMENT NEEDS
NQDC plans are designed for highly compensated employees and executives who often have different financial goals, risk tolerance, and investment knowledge
compared to 401(k) participants. Plan sponsors should tailor the NQDC fund lineup to address these differences. Executives may prefer access to sophisticated investment vehicles, such as alternatives or sector-specific funds, that align with their unique financial objectives and existing portfolios. In many cases, these types of funds would not be appropriate for most rankand-file employees.
FLEXIBILITY AND CUSTOMIZATION
Unlike 401(k) plans, NQDC plans are not subject
to ERISA’s strict fiduciary requirements. This flexibility allows plan sponsors to offer a broader range of fund options. Plan sponsors should use this opportunity to create a customized lineup that provides diverse choices, balancing simplicity for less experienced investors with advanced options for those that are more experienced. Quick word of caution: before you go “hog wild,” please remember that some alternative investments are not actively traded and can be extremely difficult to administer. Before any decisions are made, it’s best to check with your recordkeeping partner or your advisor.
ALIGNMENT WITH PLAN OBJECTIVES
The primary objective of an NQDC plan is often to incentivize and retain top talent. Offering a well-constructed investment menu can enhance the perceived value of the plan. Plan sponsors should consider funds with a strong performance history, low expense ratios, and strategies that align with the financial objectives of key employees.
REGULATORY AND TAX IMPLICATIONS
Unlike 401(k) assets, which are held in a trust for participants, NQDC plan assets are owned by the employer and subject to creditors. Plan sponsors must ensure that fund options are carefully chosen to align with the company’s financial stability and liquidity needs, particularly in the case of rabbi trusts.
THE CASE FOR MIRRORING 401(K) FUND OPTIONS
Mirroring the fund options of the 401(k) plan has certain advantages:
• Simplicity and Administrative Efficiency: Using the same lineup streamlines plan administration, reduces costs, and leverages existing fund monitoring processes. This approach also ensures consistency in participant education and communications.
• Familiarity: Employees who participate in both the 401(k) and NQDC plans may appreciate a unified investment experience,
NQDC PLANS ARE DESIGNED FOR HIGHLY COMPENSATED EMPLOYEES AND EXECUTIVES WHO OFTEN HAVE DIFFERENT FINANCIAL GOALS, RISK TOLERANCE, AND INVESTMENT KNOWLEDGE COMPARED TO 401(K) PARTICIPANTS.
reducing confusion and improving engagement.
• Proven Process: If the 401(k) plan’s investment menu has been vetted through a rigorous process, plan sponsors may feel confident in extending these options to the NQDC plan.
THE
CASE AGAINST MIRRORING 401(K) FUND OPTIONS
While convenient, mirroring the 401(k) plan may not always meet the unique needs of NQDC participants:
• Participant Goals Differ: Executives in an NQDC plan may seek
more alpha focused investments, which are typically not included in 401(k) lineups. The onesize-fits-all approach can diminish the perceived value of the plan and fail to maximize its effectiveness.
• Alignment with Corporate Objectives: The company’s financial goals and risk management considerations must also be factored into NQDC investment decisions. Using the 401(k) lineup may fail to account for the company’s liquidity needs or broader financial strategy, making
it less effective for longterm corporate planning.
• Missed Opportunities: By mirroring the 401(k) lineup, plan sponsors may overlook opportunities to offer specialized funds that align more closely with the advanced financial strategies of highly compensated employees.
THE VERDICT!
Selecting and monitoring NQDC fund options is a critical responsibility for plan sponsors. While mirroring the 401(k) plan’s investment menu offers administrative convenience, it may not fully address the unique needs of
NQDC participants. Sponsors should take a strategic approach, considering participant demographics, plan objectives, and corporate financial goals when constructing and monitoring the NQDC investment lineup. By doing so, they can enhance the value of the plan and hopefully have happy plan participants!
Matt Maier is the Vice President, Lockton Companies, LLC and chair of PSCA’s NQDC committee .
by Hattie Greenan
PLAN DESIGN
TRENDS IN DC PLANS
Participation and savings rates increased in 401(k) plans last year, while they pulled back in 403(b) plans (a reversal of trends from the previous year) according to 2024 annual survey reports from PSCA.
BOTH PSCA’S 67th ANNUAL SURVEY OF PROFIT SHARING AND 401(k) PLANS AND ITS 2024 403 (b) PLAN SURVEY, SPONSORED BY MUTUAL OF AMERICA FINANCIAL GROUP®, WERE RECENTLY RELEASED AND REVEAL TRENDS IN EMPLOYER-SPONSORED RETIREMENT PLAN DESIGN.
While plan participation rates and savings rates in 401(k) plans ticked up in 2023 after slipping off record highs the year, 403(b) plan participation slipped after climbing the year before. And while there are some similarities between the two plan types, these “opposite” type trends between the two are not uncommon as the demographics and needs of the employees in these very different industries are often impacted differently by economic and regulatory forces.
One similarity noted in 2023 – plan sponsors across the board were focused on implementing SECURE 2.0 provisions that boost eligibility and offer more flexibility to participants. Other trends include increases in Roth availability, automatic enrollment, number of investment options, and a continued focus on participant education (with low use of financial wellness programs).
Trends of note from the 67th Annual 401(k) Survey include:
• Participation: 88% of eligible employees had an account balance in 2023 and 86.9% made deferrals. Participants contributed an average of 7.8% of pay (up from 7.4%), and companies contributed 4.9% of pay (up from 4.7%) for a combined savings rate of 12.7% of pay.
• Managed Accounts: Half of plans (50.1%) offer managed accounts to participants, up from 46.9% in 2022 and 43.6% in 2021.
• Roth: Roth after-tax contributions are now available at 93 percent of plans, up from 89 percent in 2022. Twenty-one percent of participants made Roth contributions when given the opportunity.
• Cybersecurity: The use of a written cybersecurity policy continues to increase – 31% of plans have such a policy, up from 22% three years ago. Additionally, 72% use multifactor identification, up from 67% the year before.
• Mobile Tech: Seventy percent of organizations use mobile technology to provide plan access, up from 63 percent in 2022.
While trends of note from PSCA” s 2024 403(b) Plan survey include:
• Participation: 80 percent of eligible employees participate in their employer’s plan, deferring an average of almost seven percent of pay, with an average account balance of $93,957 for 2023.
• Withdrawals: More participants had an outstanding plan loan in 2023 than the year before (16.5 percent, up from 10.3 percent) and more took a hardship withdrawal (1.3 percent, up from 0.6 percent in 2022).
• Automatic Enrollment: The use of automatic enrollment is up by a third in just two years and is now used in 35.5 percent of plans, including more than half of large 403(b) plans.
• Roth: Roth availability continues to climb with more than two-thirds now making it available as an option (68.2 percent).
• Investments: The number of investments offered to participants increased for
the third year in a row –organizations now offer an average of 25 funds in their lineups.
Following are details of eight trends from both recently released survey reports.
ELIGIBILITY
Nearly all plans permit full-time salaried and fulltime hourly employees to participate. This results in an average of ninety-two percent of U.S. employees being eligible to participate in their employer’s 401(k) plan. While the percentage of employees eligible to participate in 403(b) plans has historically lagged 401(k) plans, it is now nearly equal with 90 percent of nonprofit employees eligible to participate in their employer’s 403(b) plan. SECURE Act provisions mandating eligibility for long terms part time workers will only serve to continue to bolster the percentage of employees able to participate in workplace plans.
Service Requirements
Employees are eligible to receive matching employer contributions in 401(k) plans within three months of hire at more than half of organizations that provide one (57.4 percent), while half of nonprofit employees are eligible to do so. For 401(k) plans that provide a non-matching contribution, 42.8 percent provide it within the first three months of hire while 40 percent of 403(b) plans do so.
More than a quarter of 401(k) plans have no minimum age requirement for participation, while 37.6 percent of plans require employees to be at least 21 years old to participate. Age requirements in 403(b) plans are a bit more flexible with nearly 40 percent having no age restriction and 29.4 percent requiring employees to be at least 21 years old to participate.
PARTICIPATION
The percentage of employees participating in 401(k) plans in 2023 increased slightly over 2022 rates with 88 percent having an account balance and 87 percent making contributions – participants contributed an average of 7.8 percent of pay.
An average of 80.4 percent of employees eligible to participate in 403(b) plans have an account balance, down from 83 percent the last few years, with an average of 73.7 percent making contributions (also down from the last few years). Contributing 403(b) participants had an average deferral rate of 6.7 percent of gross annual salary in 2023.
EMPLOYER CONTRIBUTIONS
The average employer contribution to 401(k) plans increased slightly to 4.9 percent of gross annual payroll in 2023 while nonprofits contributed an average of 5.3 percent of employees’ gross annual pay to 403(b) plans.
Employer contributions to the plan are determined by a wide variety of formulas – some provide a match on participants’ contributions whiles other provide a set percentage of pay to all eligible employees or a contribution based on company profitability.
In this year’s survey, more than eighty percent of 401(k) plans made a matching contribution and 44.4 percent provided some type of nonmatching contribution. More than half (53.2 percent) of nonprofits make a matching contribution to 403(b) plans, while 17.6 percent make a nonmatching contribution, and 17.6 percent make both. The most common contribution formula in both 401(k) and 403(b) plans continues to be a fixed formula of a specific employer amount based on the employees contribution up to a fixed limit.
Availability of Roth Over Time
ROTH
The percentage of plans offering Roth contributions continues to increase – though Roth is still more widely available in 401(k) plans than 403(b) plans. More than 90 percent of 401(k) plans allow Roth after-tax contributions while they are allowed in 68.2 percent of 403(b) plans. Twenty-one percent of 401(k) participants make Roth contributions when provided the opportunity, while fifteen percent of 403(b) participants do so.
INVESTMENTS
403(b) plans have always offered more investment options to participants (likely due to many nonprofits having more than one plan provider) than 401(k) plans but the gap is narrowing with 401(k) plans offering an average of 22 funds and 403(b) plans offering 25.
Investment Options
Eighty-four percent of 401(k) plans offer target-date funds with an average of 29.2 percent of assets invested in them, while 79.9 percent of 403(b) plans offer them. Half of 401(k) plans offer a professionally managed account to participants, up from 46.9 percent in 2022 while 42.1 percent of 403(b) plans do so. Seven percent of 401(k) plans offer an in-plan annuity option to participants while half of 403(b) plans offer them.
AUTOMATIC ENROLLMENT
Sixty-four percent of 401(k) plans have an automatic enrollment feature, though it is still much more prevalent among large organizations (74.3 percent) – and nearly double the percentage of 403(b) plans that use it.
Nearly thirty percent of 401(k) plans use a default deferral rate of six percent of pay (29.7 percent) while 32 percent use three percent of pay. Sixty-three percent of 401(k) plans use a default rate more than three percent of pay. Nearly a third of 403(b) plans use a default deferral of three percent of pay, while 30.2
percent have a default rate greater than that.
More than three-fourths of 401(k) plans with automatic enrollment also facilitate increasing those deferral rates over time, while less than half of 403(b) plans do so.
LOANS AND HARDSHIP WITHDRAWALS
The percentage of 401(k) participants with a loan outstanding dropped slightly to 17.5 percent with an average loan balance is $10,628, representing less than one percent of total plan assets. At the same time, more 403(b) participants had an outstanding plan loan in 2023 – 16.5 percent – though the average amount of that balance is lower at $6,803, and only accounting for 0.8% of total plan assets.
The percentage of 401(k) plan participants taking a hardship withdrawal in 2023 increased from 1.5 percent in 2022 to 2.1 percent. Similarly, the percentage of 403(b) plan participants taking a hardship withdrawal in 2023 also increased – 1.3 percent of participants did so, up from 0.6 percent in 2022.
SECURE ACT PROVISIONS
The optional provisions regarding distributions seem to be the most popular SECURE 2.0 provisions, with little uptake (so far) on most of the others. For 401(k) plans:
• 72% of organizations adopted the distributions for natural disasters.
• More than half (52.3%) adopted the distribution in the event of a qualified birth or adoption (QBAD).
• Nearly half (48.9%) adopted the distribution in the event of a terminal illness diagnosis provision.
• Only two percent of plans are adding an employer match on student loan payments.
• Less than one percent are adding a PLESA (emergency savings side-car account) and 29.3% are adopting the provision allowing a $1,000 emergency withdrawal.
• More than a third of 401(k) plans are still considering whether they will implement the optional
Use of Plan Loans in 2023
provision of SECURE 2.0 to allow Roth treatment of employer contributions while 13 percent are definitely adding it.
For 403(b) plans:
• Nearly sixty percent of plans have adopted the optional provision of the SECURE Act to allow a distribution in the event of a qualified birth or adoption (QBAD).
• Nearly 70 percent allow distributions for in the event of a natural disaster.
• 60 percent allow a distribution in the event of a terminal illness diagnosis
• 48.4 percent allow a $1,000 withdrawal in the case of an emergency
• 40 percent allow for a distribution in domestic violence situations
PSCA’s 67th Annual Survey of Profit Sharing and 401(k) Plans was released in December and reports on the 2023 plan year experience of 709 401(k) plans. PSCA’s 2024 403(b) Survey, sponsored by Mutual of America Financial Group®, was released in November and reports on the 2023 plan year experience of 323 403(b) plans.
Hattie Greenan is PSCA’s Director of Research and Communications.
The Benefits of Raising Mandatory Cash-Out Limits
Michael Kelly, Director of Enterprise Accounts at Inspira Financial, recently sat with DC Insights to discuss important retirement plan regulation changes.
SECURE 2.0 brought with it a multitude of benefits for smaller retirement plans and participants with small balances.
Inspira Financial is getting the word out about higher mandatory cash-out limits and the lower plan leakage, costs, and liability they potentially bring, making it a win-win for employers and employees alike.
Subject matter expert Michael Kelly, Director of Enterprise Accounts at Inspira Financial, recently sat with DC Insights to discuss the changes and how, specifically, they can help.
What is Inspira Financial, and what does it do?
Inspira Financial is a trusted retirement, wealth, health, and benefits partner. We provide solutions that strengthen and simplify the health and wealth journey. As the largest independent provider of automatic rollover IRA services, we help clean up retirement plans and empower individuals to engage with and grow their retirement savings. We work with plan sponsors of all sizes, providing services such as automatic rollovers, health savings accounts, emergency savings funds, and more.
Why did the cash-out limit change, and what did it change to?
Section 304 of SECURE 2.0—which stands for Setting Every Community Up for Retirement Enhancement 2.0—increased the limit for mandatory cash-outs from $5,000 or less to $7,000 or less for distributions made after December 31, 2023. This change affects 401(k)s, 403(b)s, 457(b)s, and 401(a)s.
Did something change for accounts that are far less than $7,000?
SECURE 2.0 didn’t change the lower limit for cash-outs: Lump sum amounts of $1,000 or less can be paid directly to individuals in cash. However, amounts above $1,000 must be rolled over into safe harbor IRAs if those plan participants are non-responsive and don’t specify what they want to do with their money.
If plan sponsors already have the cash-out limits of their retirement plans set to $5,000 or less, is it mandatory for them to change it?
No, it’s not mandatory.
Then why should plan sponsors go through the administrative process of changing it to $7,000 or less?
There are several reasons: First, rolling over small balance accounts into IRAs keeps retirement money in the system and reduces leakage. Second, retirement plan fees are often based on the total number of participants, so by removing smallbalance accounts from the plan, plan fees may decrease. Third, small retirement plans may be able to eliminate plan audits by removing small-balance accounts, which may keep the total number of participants in the plan to less than 100. And finally, it can reduce fiduciary risk.
How can plan sponsors determine whether increasing the mandatory cash-out limit will benefit their retirement plans?
Plan sponsors can 1) determine how many former employees are still in the plan, identify which ones have balances that are $7,000 or less; 2) discuss with their third-party administrators, recordkeepers, advisors, and consultants before taking any action; and 3) consult with an attorney about modifying plan documents to reflect the change in the mandatory distribution limit.
Do you have any additional tips for plan sponsors considering this move?
Yes, plan sponsors should review their retirement plans: If the plan rolls over balances between $1,000 and $5,000 into IRAs, consider changing it to $7,000 or less. Rolling over all former employees’ accounts balances of $7,000 or less into IRAs can decrease retirement system leakage while also decreasing potential liability and plan maintenance for plan sponsors.
Thank you, Mike, for sharing these great insights on the cash-out limit changes in SECURE 2.0.
You’re welcome. It’s been a pleasure.
Disclosure: Inspira Financial Trust, LLC performs the duties of a directed custodian and, as such, does not provide due diligence to third parties on prospective investments, platforms, sponsors, or service providers and does not offer or sell investments or provide investment, tax, or legal advice.
Interview with Michael Kelly
by John Sullivan
ALTS RISING
Alternative investment diversification and risk-adjusted return benefits are widely known, as are their complexity and cost. Can they be effectively scaled, managed, and included in retirement plans?
“Those non-correlated asset classes sure were correlated during the downturn,” one broker-dealer CEO famously said of alternative investments’ performance during the 2008 financial crisis.
IT SUCCINCTLY CAPTURED THEIR COMPLICATED NATURE AND INCREDIBLE POTENTIAL, WITH SOME TOUTING THEIR DEMOCRATIZATION AND DIVERSIFYING BENEFITS AND OTHERS NOTING THE EXPERTISE AND SOPHISTICATION NEEDED NOT ONLY TO INVEST BUT SIMPLY UNDERSTAND WHAT THEY ARE AND DO.
Add in whether they’re appropriate to include in retirement plan menus, and the debate gets (much) more interesting.
Defined simply as anything other than stocks and bonds, in theory, they perform independently (non-correlated) from their more-traditional counterparts. In 2020, the U.S. Department of Labor (DOL) gave one alternative asset class a significant boost by issuing an Information Letter involving use of private equity within professionally managed asset allocation funds, which many saw as encouragement. Yet, uptake is slow, driven by distribution and liquidity issues and the fact that plan sponsors are intrigued but also understandably skittish amid ongoing fiduciary breach filings.
“In the right hands, these assets work wonders. In the wrong hands, they wreak havoc,” The Wall Street Journal’s Jason Zweig wrote in December.
Regardless, “alt” supporters note their role in better riskadjusted returns in defined benefit (DB) plans for decades, and Yale CIO David Swensen’s endowment success when arguing for more defined contribution (DC) plan participant access.
And a new administration, at least seemingly more open to their potential use—including cryptocurrencies—is fueling discussions once again about where and how plan participants find yield.
“Most of the push is at the industry level, but for a good reason,” Yaqub Ahmed, Global Head of Retirement and Workplace Advisory Services with Franklin Innovation Research Strategies Technology (FIRST), said. “It’s coming from a couple of different sources across the ecosystem. One is certainly that asset managers are promoting it, and we feel strongly it’s the right thing to do. Secondly, other key fiduciary constituents are focused on it as well. We’ve seen a bit more interest from large, institutional plan sponsors that maybe use it in defined benefit plans, but there’s some reluctance because of the risk associated with implementation, primarily around fees.”
401(K ) FAIRNESS
Ahmed also mentioned access, calling it a fairness issue. “If you think back to the 1980s and 1990s, 401(k) s were always about bringing Wall Street to Main Street, meaning to individual investors and participants,” he said. “It was always about leveling the field. This is a prime example of granting access to private investments, which we think are incredibly important right now when you look at the investment spectrum and the limitations of fewer public companies in the market.”
Ahmed added that increasing that access will require “an incredible amount of bold advocacy from key constituents in the marketplace,” and operationally, it must be done responsibly to address the participant “running with scissors” issue, meaning strong suitability standards and professional management to ensure there isn’t harm done than good.
“401(k) plans are really the ideal place to implement [alts] because you have multi-asset type solutions, whether it’s target dates or managed accounts which are now layering in, kind of, ‘fiduciary insulation’ at a couple of levels
of advice, including at the plan sponsor level, consistent cash flow and those types of things,” he said. “To us, the 401(k) is the right place because you have all those infrastructure pieces in place to ensure that with a high probability, they can be implemented with some level of efficiency.”
Ahmed’s colleague, Kevin Murphy, FIRST’s Senior Vice President and head of Workplace Solutions & Strategic Growth, goes further back in his analysis and argument to advocate for alternative investments— mutual fund adoption in the 1950s.
“You only had roughly low single-digit stock ownership across American households in the early 1950s; Now it’s upwards of 63 percent or 64 percent of stock ownership,” Murphy said. “A lot of that is in the 401(k) and mutual funds. We think there’s a parallel with private assets overall and democratizing them for Main Street for the reasons we mentioned. Regarding implementation, the DB comment is spot on. At a very high level, it’s the continued ‘DB-ification’ of the DC plan.”
Meaning that just as mutual fund adoption took time and education (and reassurance),
so too will alternative investment adoption, and proponents must first overcome several barriers, including liquidity, valuations, risk, and resulting fear of litigation.
“Some of the barriers are real, and some just need more education,” Murphy added. “Liquidity is a real issue …valuation, obviously, is another one. I think the perception of risk and the fear of litigation, that’s another one. I think we [address] that with education and constructing the right risk-reducing and yield-enhancing portfolios, as an example. With that narrative or that education campaign in the marketplace, I think we can start to make breakthroughs.”
OLD VERSUS NEW
Another part of the issue is not only determining whether alternative investments are appropriate in defined contribution plans but which alternative investments—meaning the more oxymoronic “traditional” alternative investments versus cryptocurrency.
“We think there’s a little bit of a baby step mentality when it comes to this, in that you have to figure out a lot of different things that have been a traditional hindrance to adding private investments into a list of plans,” LeafHouse President and CEO Todd Kading said, agreeing with Murphy that liquidity is the most significant. “You have to
be careful about the different types of investments you put into a retirement plan that could have liquidity issues, even though retirement is supposed to be a 30-plus time horizon. It probably shouldn’t be a huge concern, but there is a need to rebalance and things like that.”
Strategic Retirement Partners’ (SRP) CEO and Co-Founder Jeff Cullen said the liquidity issue is a delicate balance.
“In order to be offered in a 401(k), obviously, you’re looking for liquid options,” Cullen explained. “Pulling that off in those markets, while continuing to achieve the performance objectives and being able to pass the results of an investment policy statement (IPS) where you’re being judged against your benchmark, too much liquidity in order to facilitate being in a plan can jeopardize the IPS if there’s too much of a cash drag.”
Kading said LeafHouse sees a case for the inclusion of private equity, private credit, and private real estate, but not quite to where they’re ready to incorporate specific cryptocurrency-style assets.
“However, that is something that the folks that deal in retirement should be looking at,” Kading added. “I read that BlackRock recently said they recommend that individuals have up to two percent of their portfolio in assets like that. It’s not something we’re completely barring at this point, but we’re definitely
taking it slow and looking for government direction. Like Ahmed, he mentioned that DB vs. DC plan access parity is an important consideration.
In October, Allied Market Research reported that the alternative investment funds market was valued at $12.8 trillion in 2023 and is estimated to reach $25.8 trillion by 2032, growing at a CAGR of 7.9 percent from 2024 to 2032.
“It’s just becoming a bigger and bigger part of the available investment pool,” Kading said. “If we’re barring everybody but highnetwork individuals and institutions from accessing those markets, we think that could be a problem for the everyday American worker. We’re trying to look for enhanced returns, diversification, and risk mitigation. We believe all those things could be offered with private markets if appropriately done and always in a controlled environment like a managed account format.”
When asked about the demand for alternative investments in retirement plan menu options, he made an important point.
“You have to be careful when you only try to fill a demand, meaning there was nobody sprinting to Washington to say, ‘If you would give me an investment that had a targeted date in it, I’m going to put a lot of money towards retirement,” Kading argued. “There was certainly nobody running to Congress and saying, ‘Hey, if you took my money and put it in a retirement plan, I’d be really happy.’ However, the industry saw the need and stepped up and worked to try to fill what they thought was appropriate. I don’t know if the average public understands this enough to have a demand for it. I can tell you that those who understand how private markets and investments work and the benefits they can bring have been asking for this type of solution.”
SRP’s Cullen compared alternatives in 401(k)s with another solution struggling for retirement plan traction—retirement income products.
“On the in-plan income side, there are insurance wrappers that you can use with any collection of funds,” he said. “That’s pretty easy, but in the case of products where the actual annuity is the solution, they haven’t been successful as stand-alone options. They’re only really successful when you bake them into managed accounts, the target date fund, or whatever the QDIA might be. That way, you automatically get people in, but it’s a measured approach. You don’t want people putting all their money into something they may or may not understand.”
“I think it will be the same with alts,” Cullen added. “You’re going to see alts come via managed accounts. That way, the advisor is going to be able to control and measure the amount of exposure that a portfolio has.”
CREATIVE COLLABORATION
Murphy mentioned one other ingredient he said is crucial to alternative investment availability and adoption within retirement plans—collaboration.
The complexity involved makes it difficult, if not impossible, for one manufacturer, provider, recordkeeper, etc., to handle it all, something the many moving parts reinforce.
For example, in November, Kading and LeafHouse announced a partnership with South Dakota trust company Alta Trust to launch the Alta Privately Managed Alts Fund, a collective investment trust (CIT).
The CIT investments will include private investments managed by alternative asset and retirement giant Apollo, along with Franklin Templeton. Alta Trust will serve as the CIT trustee.
“The Alta Privately Managed Alts Fund is designed to seek capital appreciation and income primarily through alternative investment exposure,” NAPA Net’s Ted Godbout reported at the time. “According to the announcement, the CIT may be an appropriate investment for professionally managed vehicles and programs seeking exposure to a combination of private and publicly available income investments.”
Plan participants will gain access to institutional private real estate through the Clarion Partners Real Estate Income Fund
Just as mutual fund adoption took time and education (and reassurance), so too will alternative investment adoption, and proponents must first overcome several barriers, including liquidity, valuations, risk, and the resulting fear of litigation.
(CPREX). Clarion Partners is a “specialist investment manager” of Franklin Templeton.
“With the inclusion of CPREX, investors will benefit from access to a fund targeting both current income and long-term capital appreciation managed by Clarion Partners, one the most experienced managers in the real estate investment space,” Ahmed said in the announcement.
“Democratizing alternative investing for Americans saving for retirement requires bolder advocacy and industry collaboration. This is a major step forward in terms of leveling the field and broadening access.”
As we said—complex, but the type of product Ahmed argued is key to personalization going forward.
“Just as an example, looking back at the Pension Protection Act of 2006, nothing’s really changed on the target-date side,” he said. “It’s like this
one-size-fits-all thing, an easy button, that hasn’t changed. It needs to change.”
“We believe it’s the first of its kind, built for the retirement [plan] because it’s a CIT, has liquidity and multi-asset classes, and is overseen by a fiduciary,” Murphy added. “We feel like it’s a real breakthrough in being creative and collaborating in the right way, and really trying to solve for what we see as the barriers to more widespread adoption of these types of products in the DC market today. We hope more will follow.”
Claiming that a rising tide lifts all boats, “If we can get more people thinking outside of the box and collaborating, we think it’s good not only for our firm but for the overall industry. Ultimately, we’re all doing this for plan participants and their outcomes,” Murphy concluded.
John Sullivan is the Chief Content Officer for the American Retirement Association.
by Ann Brisk and Laura Stamps
Three Tips for Strategic Use of an HSA
PSCA’s HSA Committee provides three tips for participants on strategic use of their HSA while actively employed to save for future expenses.
BELOW ARE THREE TIPS TO SHARE WITH PARTICIPANTS ON WAYS TO STRATEGICALLY USE THEIR HSA WHILE THEY ARE WORKING TO SAVE FOR FUTURE EXPENSES.
1. FIRST THINGS FIRST – MAKE SURE YOU’RE CONTRIBUTING TO YOUR HSA. IN A WORLD OF COMPETING FINANCIAL PRIORITIES, IT’S UNSURPRISING THAT MANY PEOPLE AREN’T SURE HOW TO PRIORITIZE THEIR SAVINGS.
After ensuring you receive the full company match on your retirement plan contributions, adding to your HSA may just be your next best bet. Even contributing a small amount from each paycheck can pay off in the form of tax savings on everyday healthcare expenses like Band Aids and pain relievers. Everyone can benefit from using their HSA for any healthcare need.
2. TRACK ALL OUT-OF-POCKET QUALIFIED MEDICAL EXPENSES AND RELATED PURCHASES, THEN MAKE SURE YOU KEEP YOUR RECEIPTS!
Your documentation must clearly demonstrate what reimbursable item/service was purchased – having a receipt that doesn’t include these details will not help you. But never fear – there are many stores that will categorize and summarize the amount of HSA reimbursable items right on the receipt. Additionally, there are many tools that HSA administrators offer to help you keep track of these receipts electronically! Most importantly remember that you can reimburse yourself at any time in your lifetime for these purchases completely tax free. So, if one day you find yourself in need of some cash and you have receipts for qualified medical expenses you can raid your HSA and use it. There is really no downside to putting money into an HSA.
3. DETERMINE HOW YOU WILL USE THE PROCEEDS AS A COMPONENT OF YOUR FINANCIAL PLAN.
Here are some more creative examples of how to put your HSA dollars to work for you based on your situation. While paying for uncovered/out-of-pocket medical expenses may be a more obvious use of funds, here are other ideas to consider:
• Supplementing gaps in income due to unexpected medical leaves or disability claims. While it’s hard to prepare for the unexpected, having a cushion by way of your HSA may help. While FMLA or other work policies may protect your job, there is no guarantee that you will have enough sick time or PTO to cover your time away. This may be a perfect time to turn in receipts from unrelated medical costs to cushion the blow of a sudden loss of income.
• Extending parental and/or bereavement leaves. There is a myriad of reasons to take extended time off in these instances. If your employer allows you to take unpaid extensions beyond the allotted time off for the related event, you may consider leveraging your HSA as an additional way to supplement the cost of your leave.
• For general emergencies. While this isn’t ideal, if you have qualified reasons to be reimbursed from your HSA, you can think of them as your “break glass in case of emergencies” fund, turning them in for whenever you have unexpected expenses for which incurring high-interest rate debt may be the only alternative.
• Once you join Medicare. When you enroll in Medicare you can use your HSA funds to pay for Medicare premiums and any out of pocket qualified medical expenses you have. HSA funds can make your 401(k) dollars go further since you must pay tax on withdrawals. Using your tax-free HSA will let you keep more of your retirement money for living expenses.
Ann Brisk is the Senior Managing
Growth
Director,
Strategic Partnership
for HSA Bank. Laura Stamps is the head of DE&I for Financial Finesse.
by Jennifer Rayner
Employee Engagement Resolutions: Starting the Year with Connection and Care
Now that open enrollment season is over – what are your strategies for employee engagement in the new year?
AS THE CALENDAR FLIPS TO JANUARY, HR LEADERS AND PLAN SPONSORS FACE A UNIQUE OPPORTUNITY TO REFLECT ON EMPLOYEE ENGAGEMENT STRATEGIES AND LAY THE GROUNDWORK FOR A STRONGER, MORE CONNECTED WORKFORCE IN THE YEAR AHEAD.
While open enrollment may have set the tone for benefits communication, employee engagement is a year-round endeavor—one that directly influences retention, morale, and organizational success.
WHY ENGAGEMENT MATTERS BEYOND OPEN ENROLLMENT
Employee engagement extends far beyond the transactional aspect of benefits enrollment. Research consistently shows that engaged employees are more productive, have higher levels of job satisfaction, and are less likely to leave their roles.
According to Gallup, organizations with highly engaged workforces see 23 percent higher profitability
and experience significant reductions in absenteeism and turnover (Gallup, 2023).
Disengagement, on the other hand, has a steep cost. A 2023 Gallup study estimates that disengaged employees cost U.S. organizations between $450 billion and $550 billion annually, primarily due to lower productivity, absenteeism, and turnover (Gallup, 2023).
As companies plan for the coming year, employee engagement should remain a top priority. It’s not just about boosting morale but also about fostering a culture of connection and care that impacts the bottom line.
KEY FOCUS AREAS FOR THE NEW YEAR
Building a Culture of Connection
Connection is the cornerstone of engagement. Employees who feel a sense of belonging are more likely to stay invested in their roles. Consider creating opportunities for teambuilding activities, recognition programs, and diversity and
inclusion initiatives to ensure all employees feel valued and connected.
Expanding Communication Channels
Engagement isn’t one-sizefits-all. Non-desk workers, remote employees, and hybrid teams may require different approaches. Use a mix of communication methods, such as emails, text messages, and app-based platforms, to ensure messages reach every corner of your workforce.
Personalization—even something as simple as addressing employees by name—can make a big difference.
Leveraging Employee Feedback
Employees want to feel heard. Instead of relying solely on traditional surveys, consider incorporating micro-interactions to gauge employee needs and challenges. These can include 2-3 targeted questions delivered periodically throughout the year.
This approach creates an ongoing dialogue between employees and leadership, providing real-time insights and uncovering trends that may not surface in periodic surveys.
ACTIONABLE TIPS FOR PLAN SPONSORS AND HR LEADERS
1. Set Engagement Goals for Q1: Start the year with measurable objectives, such as increasing participation in wellness programs or improving survey response rates. Clear goals provide a framework for evaluating success.
2. Introduce Financial and Wellness Themes for the Year: Align your messaging with organizational goals and employee interests. Themes like “Building Financial Confidence” or “A Healthier You” can drive participation in programs while reinforcing your commitment to employee well-being.
3. Show Gratitude: Start the year by acknowledging
employees’ hard work and contributions. Whether through personal notes, team shoutouts, or small tokens of appreciation, gratitude goes a long way in strengthening engagement.
LOOKING AHEAD
Employee engagement isn’t just a box to check during open enrollment—it’s an ongoing investment. According to a 2023 report from Willis Towers Watson, only 60
percent of employees fully understand their benefits offerings, highlighting a clear opportunity for more effective communication throughout the year.
Additionally, organizations that actively prioritize engagement see a 41 percent reduction in absenteeism and an 18 percent reduction in turnover (Willis Towers Watson, 2023).
As we move through the new year, consider planning
mid-year check-ins, launching wellness challenges, or updating benefits offerings to reflect employees’ evolving needs. Technology can be a powerful ally, streamlining communication and scaling engagement efforts with tools that reach employees wherever they are.
CONCLUSION
The start of a new year is the perfect time to recommit to your employees. By focusing on connection, communication, and continuous improvement, HR leaders and plan sponsors can ensure that employees feel supported and valued all year long.
Small steps taken today can lead to big results tomorrow— for your workforce and your organization.
Jennifer Rayner is the Founder & CEO of Moniwell and a member of PSCA’s Education & Communication Committee.
by Brian Furgala
Use the Force: Leveraging ForceOut Distributions After SECURE 2.0 Changes
May the force be with you – in removing small balances from retirement plans.
MANAGING SMALL BALANCES IS EXPECTED TO BECOME MORE COMMON IN THE COMING
YEARS. SECURE 2.0 changes, such as mandatory automatic enrollment provisions and longterm, part-time (LTPT) employee requirements, will likely increase the number of small account balances. Combined with an average employment length of about five years, this trend suggests an increase in terminated employees with small balances in the plan.
SECURE 2.0 also raised the threshold for force-out distributions, allowing plans to process distributions of small balances for terminated employees. Plans that use force-out distributions and automatic rollover IRAs efficiently can reduce costs and ease operational burdens.
BENEFITS OF USING FORCE-OUT DISTRIBUTIONS
The ability to remove terminated employees with small account balances lowers plan-related costs and streamlines operations. Using force-out distributions can:
• Lower service provider fees. Plans may achieve better pricing by increasing average account balances and reducing fees based on headcount or assets.
• Reduce the likelihood of a Form 5500 audit. Auto-enrollment and LTPT employee requirements will likely increase the number of accounts. Plans exceeding 100 accounts generally require an annual audit, costing $7,000 to $15,000. Removing small balances can help avoid this threshold.
• Minimize operational errors. More accounts increase the chances of errors or operational failures. Removing small balances reduces these risks, saving time and money.
INCREASED THRESHOLD AND EFFECTIVE DATE
The benefits of force-out distributions multiply with adoption of the optional provision in SECURE 2.0 increasing the cashout threshold. The small-balance limit rose from $5,000 to $7,000, effective for distributions after Dec. 31, 2023. This allows plans to remove balances of up to $7,000 for employees who terminated years ago, saving money and improving efficiency.
For example, Genelle left her job in 2020 with a balance of $5,800, which exceeded the previous threshold. By 2024, her balance is $6,500, making her eligible for a force-out distribution under the new limit. The plan administrator should notify her that the balance will be distributed unless she makes an election. If she doesn’t respond, her account transfers to an automatic rollover IRA.
AMENDMENT TIMING
The new $7,000 threshold can be implemented immediately, without waiting for a plan document amendment. Plans have until Dec. 31, 2026, to formally amend their documents under SECURE 2.0. If a plan previously didn’t allow force-out distributions or used a lower threshold, it may still operate under the new limit before amending the document. Although the conservative approach is to amend first, past IRS practices support using the new threshold with a later amendment deadline. Plan administrators should consult their ERISA attorney and/or plan advisor for advice on making these changes.
USING AUTO ROLLOVER IRAS FOR BALANCES OF $1,000 OR LESS
While implementing the $7,000 limit, consider using auto rollover IRAs for all force-out distributions, including balances of $1,000 or less. Participants often leave small balances unclaimed, creating fiduciary risks and tax consequences. Auto rollover IRAs eliminate these issues by transferring responsibility to the IRA provider and avoiding taxable income or penalties for participants.
Uncashed checks remain plan assets protected under ERISA, requiring fiduciary duties such as participant notices, Form 5500 reporting, and earnings allocations. Auto rollover IRAs remove these obligations. Moreover, the Department of Labor (DOL) requires regular searches for missing participants, a burden avoided by using auto rollover IRAs.
Participants also benefit. For example, Adriana, age 25, misses the deadline to respond to a $800 distribution notice. If she receives a check, the amount becomes taxable income, and she may incur a 10 percent early withdrawal penalty. With an auto rollover IRA, her funds remain tax-deferred, and she controls when to withdraw.
THESE AREN’T THE SMALL BALANCES YOU’RE LOOKING FOR
Force-out distributions help control plan expenses and streamline administration. With SECURE 2.0 potentially increasing the number of small balances in your plan, it may be beneficial to adopt the $7,000 threshold. While the limit doesn’t adjust for inflation, employers should act regularly to maximize its benefits.
Using automatic rollover IRAs for all force-out distributions –from $1 to $7,000 – can reduce fiduciary risks and prevent unwanted tax and penalty issues for participants. Together, these tools help participants live long and prosper. Wait, wrong franchise!
Brian Furgala is the Senior Director of Retirement Services Strategy at PenChecks Trust.
by Nevin E. Adams, JD
Making a List...
It is better to determine if your savings behavior is naughty or nice when there is still time to change it –which is well before “retirement” eve.
“YOU BETTER WATCH OUT, YOU BETTER NOT CRY, YOU BETTER NOT POUT…” Those are, of course, the opening lyrics to that holiday classic, “Santa Claus is Coming to Town.” And while the tune is jaunty enough, the message –that there’s some kind of elfin “eye in the sky” keeping tabs on us has always struck me as just a little bit…creepy.
NAUGHTY OR NICE?
Every year about this time we read survey after survey recounting the “bad” savings behaviors of American workers. And, despite the regularity of these findings, most of those responding to the ubiquitous surveys about their (lack of) retirement confidence and their (lack of) preparations don’t offer
much, if anything, in the way of rational responses to those shortcomings. Yes, even though they apparently see a connection between their retirement needs and their savings (mis)behaviors. The most recent “target” was the oft-overlooked Gen X – who, at least according to one recent survey is (even) less prepared than the Boomers
OR Millennials (Gen X just can’t catch a break!).
The reality has long been that a significant number will, when asked to assess their retirement confidence, generally acknowledge that there are things they could – and know they should have – done differently. Retirees routinely bemoan and regret their lack of attention to such
THE REALITY HAS LONG BEEN THAT A SIGNIFICANT NUMBER WILL, WHEN ASKED TO ASSESS THEIR RETIREMENT CONFIDENCE, GENERALLY ACKNOWLEDGE THAT THERE ARE THINGS THEY COULD – AND KNOW THEY SHOULD HAVE – DONE DIFFERENTLY.
things. Sadly, if there’s anything as predictable as the end of year regrets, it’s the perennial list of new year’s resolutions to (finally) do something about it. And the cycle repeats.
So, if they know they’ve been “naughty” – why don’t they do something about it?
Well, some certainly can’t – or can’t for a time – but most who respond to these surveys seem to fall into another category. It’s not that they actually believe in a retirement version of St. Nick, though that’s essentially how they seem to (mis)behave. That said, they continue to carry on as though, somehow, these “naughty” savings behaviors throughout the year(s) notwithstanding, they’ll be able to pull the wool over the eyes of that myopic, portly old gentleman in a red snowsuit. They act as though at their future retirement date (which a growing number say will never arrive), despite their lack of attentiveness during the year(s), a benevolent elf will descend their chimneys with a bag full of cold, hard
cash from the North Pole. Or that sufficient time (or market gain) remains to remedy their “wrongs.”
Unfortunately, like many kids in the week before Christmas, many worry too late to meaningfully influence the outcome.
A WORLD OF POSSIBILITIES
Now, the volume of presents under our Christmas tree never really had anything to do with our kids’ behavior(s).
As parents, we nurtured their belief in Santa Claus as long as we thought we could, not because we truly expected it to modify their behavior, but because we believed that children should have a chance to believe, if only for a little while, in those kinds of possibilities.
We all live in a world of possibilities, of course. But as adults we realize – or should – that those possibilities are frequently bounded in by the reality of our behaviors, as well as our circumstances. And while this is a season of
giving, of coming together, of sharing with others, it is also a time of year when we should all be making a list and checking it twice – taking note and making changes to what is “naughty and nice” about our personal behaviors – including our savings behaviors. To “be good,” not just for “goodness” sake, but for what we all hope is the “goodness” of financial “freedom” in our lives. Yes, Virginia, as it turns out, there
is a retirement savings Santa Claus — but he looks a lot like you, assisted by “helpers” like your workplace retirement plan, your employer’s matching contributions — and your trusted retirement plan advisors and providers.
It’s time to do more than just make a list — but it’s a place to start.
Happy Holidays!
Nevin E. Adams, JD is the former Chief Content Officer for the American Retirement Association
by James Locke
Key Policy Initiatives as 2024 Nears Its End
The American Retirement Association (ARA) continues to push for policy reforms it has been championing this year, and gears up for potential changes and challenges for 2025.
WITH ELECTIONS IN THE REARVIEW MIRROR, THERE ARE ONLY A FEW LEGISLATIVE DAYS REMAINING IN THE 118TH CONGRESS. As the American Retirement Association (ARA) continues to navigate this “lame-duck” session, it will continue its advocacy efforts, pushing for policy reforms aimed at improving the employer-sponsored retirement system for both professionals and participants.
EXPANDING ACCESS TO COLLECTIVE INVESTMENT TRUSTS FOR 403(B) PLANS
Empowering 403(b) plan sponsors to include CITs in their suite of investment options is ARA’s top priority for the remainder of the year. The ARA supports a proposal that would amend outdated securities law to allow 403(b) plan sponsors to leverage CITs in their investment lineups. The Retirement Fairness for Charities and Educational Institutions passed the House in March, and a Senate version was introduced by Senators Katie Britt (R-AL) and Raphael Warnock (D-GA) in August. For the remainder of the year, the ARA will continue to engage with Senate members and encourage the bill’s passage.
NEW TAX CREDIT FOR NONPROFITS
Another significant retirement policy initiative being advanced by ARA focuses on enhancing retirement plan accessibility for charities and non-profits. Specifically, ARA is advocating for a payroll tax credit to incentivize non-profit organizations to adopt retirement plans for their employees.
SECURE 2.0 included a robust retirement plan start up credit tied to income tax liability. This provision has helped small businesses across the country adopt retirement plans for their workers. Unfortunately, this provision does not help nonprofits because they generally do not have any income tax liability. Accordingly, ARA has been working with members of Congress to introduce legislation modeled after the SECURE 2.0 tax credit but instead delivering the tax credit against the nonprofit’s payroll tax liability.
In August, Senators James Lankford (R-OK) and Catherine Cortez Masto (D-NV) introduced a bill that would create this essential payroll tax credit for nonprofits wishing to adopt a retirement plan for their workers. ARA is also working with members in the House to introduce a companion bill.
ROTH IRA ROLLOVERS
ARA is also working to introduce legislation allowing the rollover of Roth IRA savings into workplacebased defined contribution plans. Currently, while employees can transfer pre-tax amounts during job changes, Roth savings remain trapped in IRAs.
To address this, ARA worked with Rep. LaHood (R-IL) and Rep. Sanchez (D-CA) to introduce H.R. 6757 which will facilitate the seamless transfer of Roth savings into designated Roth buckets within 401(k) plans. ARA is pursuing a Senate companion bill to further support this initiative.
TAX REFORM
As the Tax Cuts and Jobs Act is set to expire at the end of 2025, members of Congress are beginning to discuss potential changes to the tax code that could have a substantial impact on America’s retirement system.
The tax treatment of retirement savings will be a major focal point for lawmakers in the new Congress. Proposals to adjust the tax incentives for retirement savings have already been seen in SECURE 2.0, and discussions on further reforms are likely to continue in SECURE 3.0 and beyond. These might include expanding tax credits to incentivize retirement plan participation, particularly for low- and middle-income workers, and addressing the tax treatment of Roth savings and workplace retirement plans.
Alternatively, members of Congress may look to slash the tax incentives for retirement plans to pay for other tax-related legislative priorities. Accordingly, the ARA will spend much of next year educating members of the tax writing committees on the importance of preserving the tax-advantaged status of retirement plans.
James Locke is the American Retirement Association’s Director of Federal Government Affairs.