At first glance, Secure 2.0 has something for everyone.
In fact, the sweeping law with a range of retirement provisions that was passed late last year offers employers new opportunities to improve their employee benefits offerings, particularly those encouraging emergency savings, tying 401(k) plan matching contributions to employee student loan repayment, and encouraging overall retirement plan participation. For employers interested in helping employees improve their financial well-being, these provisions can be a compelling starting point for establishing a new financial wellness program or enhancing an existing one.
Emergency Savings Accounts
In particular, the law's impact on emergency savings accounts could become an important addition to financial wellness efforts.
"Emergency savings is really the cornerstone of a financial well-being program," said Holly Verdeyen, U.S. defined contribution leader with consulting firm Mercer. "These plans can be particularly attractive to employers with a large portion of employees living paycheck to paycheck."
The reason is simple. A successful emergency savings account can ensure that employees have access to cash when they need it without resorting to more expensive solutions, like high-interest payday loans or a 401(k) plan loan. "With emergency savings, even a small dollar investment can have a big impact," Verdeyen said. Some companies may add an incentive or match to increase emergency savings balances.
Getting Started Now
Not all employers are waiting for the Secure 2.0 provisions to take hold before making changes. Farmington Country Club in Charlottesville, Va., recently launched an emergency savings vehicle for its approximately 350 year-round employees.
"Offering an emergency savings account is something we have wanted to do for a while," said Carla Hallman, SHRM-SCP, the club's HR manager. "We knew Secure 2.0 was coming, so starting the emergency savings program seemed to be a no-brainer" that would help employees quite a bit.
For example, two of the organization's goals for the emergency savings plan are to reduce the number of 401(k) plan loans employees take out and to help employees manage their finances by having something set aside for unexpected expenses. Hallman refers to the emergency savings option as "incremental help that is 'set it and forget it' " for employees who are trying to manage their financial lives better.
Saving $10 to $15 per paycheck can help employees build their emergency savings account balances over time while knowing they can access those funds at any time and for any reason. The program currently offers a match on 5 percent of salaried employees' contributions and 10 percent of hourly employees' contributions, up to $100 per year for both groups. Once the Secure 2.0 provisions, like automatic enrollment, become available, the company can easily modify the plan as needed.
As Hallman has learned, just offering a program designed to help employees manage their financial lives better is not enough. Employers must be prepared for employee skepticism about participating.
"It took some convincing at first" to get people to sign up, she said. "People wanted to know, 'What's the catch?' " she said. "It's important to meet employees where they are and explain how emergency savings helps them," she said.
This situation is not unusual, according to Sid Pailla, CEO of Sunny Day Fund, an emergency savings vehicle. In general, employers are likely to encounter three groups of employees when rolling out an emergency savings plan: the early adopters who are immediately interested; those who know emergency savings accounts are important but opt out because of other financial priorities; and those who think they don't need to save for emergencies.
It is this last group that requires the most attention. "Employers can focus on automation in enrollment and contributions for this group," Pailla said. "They may also need to be rewarded for their behavior through employer contributions or a match."
Combining emergency savings with help for student loan repayment could lead to greater retirement plan participation as employees begin to feel more comfortable about putting money away for a long-term goal like retirement.
By intentionally focusing on underserved populations, employers might see a 30 percent initial enrollment grow to 50 percent after a few months as more people become aware of the program.
"Don't forget about the social aspect of this," Pailla said. "People contributing to emergency savings accounts and any incentives will talk about it with their peers," which lends credibility to the program.
'Starter K' Plans
Implementing emergency savings accounts and other Secure 2.0 provisions stands to benefit those employees who need help the most. For example, the law allows employers that have never sponsored a retirement plan to set up a simplified 401(k)—a "Starter K" plan. Under this new plan, employers will not be required to contribute, and employees will be automatically enrolled with contributions at 3 percent of their pay.
"The Starter K becomes a great option for a small business that cannot afford the administrative complexities and heavier price tag of a regular 401(k) but still wants to give workers an opportunity to save for retirement," said Nicolle Willson, director of retirement consulting at retirement plan platform Guideline.
This can be a particularly attractive option for employers operating in states that require employers to offer their employees some type of retirement plan. "The Starter K could be a great private alternative to the potentially somewhat clunky state IRA options," she said.
Employers can also improve their diversity, equity and inclusion (DE&I) efforts by introducing a Starter K plan. Research conducted by the American Retirement Association estimates that the Starter K plan for smaller employers could help 19 million additional workers save for retirement, with Black and Hispanic workers seeing a 22 percent increase in access to workplace retirement plans.
When it comes to student loan debt, "women and members of the Black and LGBTQ communities are most adversely affected, so the addition of both student loan and 529 benefits [in Secure 2.0] can bolster an employer's DEI efforts" and help reduce employee stress, said Patricia Roberts, author of Route 529: A Parent's Guide to Saving for College and Career Training with 529 Plans (Button House Publishing, 2020) and chief operating officer of Gift of College Inc.
Pick the Provisions That Meet Your Talent Goals
How employers use the provisions in Secure 2.0 will depend on what they want their financial wellness plans to achieve, experts said. For example, offering 401(k) plan contributions tied to student loan repayment will depend on whether this approach will help employers attract and retain their ideal talent.
"Help with student loan repayment can be a good thing for a specific type of employer," Verdeyen said. These employers include those with a large number or percentage of younger employees who may not be able to contribute to a retirement plan because of student loan repayment obligations. As a result, these employers may see lower-than-expected 401(k) plan participation rates.
As the provisions of Secure 2.0 take hold over the next few years, employers can expect more vendors to enter the market with solutions that include resources for educating employees about these programs and financial wellness as a whole. The resulting choices can help employers encourage and support their employees in moving toward greater financial well-being.