Am I the only one?

Listening to a presentation today on SECURE 2.0 and I left with the impression that this is literally impossible to implement.  Anyone else?

Between Roth as catch-ups, match as Roth, mandatory auto enrollment (with Auto Increase to boot), 37 new distribution options that you can only take once every 3 years.

Sure I'm exaggerating but only a little.  I just can't see implementing this stuff with a small service business that has 25 employees.

Austin, 

i agree Austin. 

2.0 feels challenging, messy, crappy.... 

Agreed Austin. I was against most of it from the first time I heard about it.

Just from a recordkeeper's perspective - the things that bother us most are those that slice and dice plans/participants/retirees based on differentiators that are difficult to implement/track/monitor.  For example, we now need special systems support to track the enhanced catch-up for those 62 to 64 years old.  We need to track last years income in connection with whether those catch-ups are Roth (some will be, some won't).  We need to revamp the whole catch-up protocol - as we currently use the one-bucket approach and adjust at year end if a plan/regulatory limit isn't met (and what happens if you have a Roth catch-up, and the participant doesn't hit a limit?   We need to track participant elections on Roth employer contributions (some will, some won't).  Same for employers who elect to offer that feature.   We need to track start-up to see which need to be auto-feature plans (under 10 employee companies are exempt, but they grow - so is there a "spring requirement"?  Same for businesses in existence for less than 3 years.

We use Omni - probably the most sophisticated r/k system around - and it will require significant updates to accommodate much of this (and FIS only does that for newer versions - which will require some r/k's on older versions to upgrade (at a cost).  And then there are the payroll providers....  They are behind the eight ball as well....

The games has begun and our cost estimate for implementation is well into seven figures....

MoJo, your recent BenefitsLink explanation that being available as a recordkeeper is a deselection game—because one must build every new feature lest any desired customer or to-be-satisfied consultant want it or even just ask for it—is right on.

Do you see the software build you describe (and the people power needed for the inevitable data weaknesses and processing errors) as another factor that could move some (more) insurance, investment-management, and other financial-services businesses to sell off recordkeeping businesses?

(I don’t seek any nonpublic information; I ask only about a general trend.)

Could we be headed yet a little more toward having a “big five” do a vast majority of the recordkeeping?

1 hour ago, Belgarath said:

I agree that some of it is absurd from an administrative standpoint

Absolutely perfect choice of words.

And yet, at least some of the lobbyists were people who say they speak for retirement-services providers.

2 hours ago, Belgarath said:

Why doesn't this legislation help ME retire?!!!

It is going to help you retire by aging you prematurely.    

I actually really like more than a few of the provisions in S2.0. 

Implementation is going to be a nightmare for many of these provisions though.

I started having the " whoa there cowboy, while the law allows for it, there are lots of moving parts and we need guidance before we can..." conversations on 12/29/2022...  

1 hour ago, Peter Gulia said:

MoJo, your recent BenefitsLink explanation that being available as a recordkeeper is a deselection game—because one must build every new feature lest any desired customer or to-be-satisfied consultant want it or even just ask for it—is right on.

Do you see the software build you describe (and the people power needed for the inevitable data weaknesses and processing errors) as another factor that could move some (more) insurance, investment-management, and other financial-services businesses to sell off recordkeeping businesses?

(I don’t seek any nonpublic information; I ask only about a general trend.)

Could we be headed yet a little more toward having a “big five” do a vast majority of the recordkeeping?

Yes, it most certainly is a deselection game - and unfortunately, often the law allows things that we must implement to be in the RFPO pool, but not much uptake.  Qualified Birth or Adoption distributions being one.  Maybe 10% of our clients have adopted, and we've had a grand total of 4 such distributions since they have been available - with no repayments.

Consolidation is inevitable, but fortunately we're in an acquisition mode.  Just depends on who is for sale......

1 hour ago, Peter Gulia said:

And yet, at least some of the lobbyists were people who say they speak for retirement-services providers.

Yeah. I think ASPPA rotated a long time ago from having the back of small TPAs to siding with the giants of the industry, in particular the investment companies.

I like some of the new opportunities.

(I especially like removing, almost completely, the employer/administrator from evaluating a participant’s circumstances.)

Yet, I recognize many complexities, and imagine there are some I won’t see until there is a problem in play.

Yesterday, a client decided to do nothing on all permitted provisions until after it concludes its search for a recordkeeper.

The poor recordkeepers and payroll providers have to program their systems starting now to be live 1/1/2024 with no guidance. And since we STILL have no guidance on the LTPT rules I am not optimistic that the guidance will reach us in any sort of time frame that will be of any use when we most need it.  We need it by the end of April at the latest.  This LTPT thing especially needs tons of clarifications.

If Congress abolished an individual-account retirement plan’s coverage, nondiscrimination, and top-heavy rules would that solve most of the difficulties about long-term part-time employees?

38 minutes ago, Bird said:

Yeah. I think ASPPA rotated a long time ago from having the back of small TPAs to siding with the giants of the industry, in particular the investment companies.

I think there is some truth to that.  But I also think that it was inevitable when you look at what the politicians want to accomplish with their policy changes.  is there an alternative?  

45 minutes ago, RatherBeGolfing said:

I think there is some truth to that.  But I also think that it was inevitable when you look at what the politicians want to accomplish with their policy changes.  is there an alternative?  

At this point, with my career in the rear-view mirror, I am of the opinion that the retirement plan rules are fundamentally broken and unfixable. We have widespread noncompliance, both due to complexity and willful neglect. I can't say I've given it that much thought but maybe, just maybe, we need to move to some kind of mandatory employer contribution (SS after all is a mandatory employer contribution) that goes into some kind of DC plan...like a SH nonelective. Get rid of the auto-enrollment stuff, or at least make it optional. And increase the 401(k) max but decrease the overall DC 415 limits and get rid of cross-testing (if you want a DB plan then put in a DB plan!) and otherwise simplify. I am literally doing this on the fly so it's not like I gave it any previous thought, and my opinion is no doubt colored by working with small plans and largely taking TH contributions as a given. 

1 hour ago, Bird said:

At this point, with my career in the rear-view mirror, I am of the opinion that the retirement plan rules are fundamentally broken and unfixable.  We have widespread noncompliance, both due to complexity and willful neglect.  

Ding, ding, ding!

6 months until retirement!! SO looking forward to it.  

Ill retire somewhere around Cycle 10 restatements...

23 hours ago, austin3515 said:

Listening to a presentation today on SECURE 2.0 and I left with the impression that this is literally impossible to implement.  Anyone else?

Between Roth as catch-ups, match as Roth, mandatory auto enrollment (with Auto Increase to boot), 37 new distribution options that you can only take once every 3 years.

Sure I'm exaggerating but only a little.  I just can't see implementing this stuff with a small service business that has 25 employees.

Austin, let me first say that I typically enjoy and agree with many of your comments.  Quite frankly, I am thinking of retiring early given some of the garbage in this law.  I would also note that I often find people who are primarily in the sale of assets love this law, while many of us on the operations side hate it.  Excluding states that are expected to mandate having a plan, I see many plan terminations will be the result.  Do we exaggerate?  Time will tell.

I'm a little nervous that so many people are factoring this in for retirement...  Someone in my office is saying the same thing.  There might be a mass exodus of talent as a result of this too.   Quite frankly if I was 64 I'd probably retire too.

I still have some in-house recordkept, balance forward, plans and I still take the occasional individual account brokerage plan.  I am no longer going to take any plans in-house.  Trying to create distribution notices and forms.  Having to track, create, and send annual notices for automatic enrollment participants who are not automatically enrolled.  Now creating 1099R forms for employees who did not know that they were making catch-up contributions but had to have deferrals reclassified as catch-up due to a failed ADP test and somehow change sources from pre-tax to Roth - it is all too much to do without programmers to constantly evolve a recordkeeping system and a legal team to create notices and forms.

I see some good things, but the devil is in the details as they say.  

Has anyone read Atlas Shrugged? Or am I the only one thinking about the perils of over-regulation?

Good call!  The train has indeed left the station!

4 hours ago, Bird said:

At this point, with my career in the rear-view mirror, I am of the opinion that the retirement plan rules are fundamentally broken and unfixable. We have widespread noncompliance, both due to complexity and willful neglect.

This has been true for a while.   I have been convinced any plan that wasn't designed to be simple is out of compliance if you look hard enough. 

Part of why I got into ESOPs was they were more interesting than small 401(k) plans which is how I got into this industry.   They have gotten so complex the chances of making an error are huge.   And I don't know how some of you folks do small 401(k) plans any more.  All the silly notices and disclosures that if you miss a simple deadline can put things out of compliance.  The volume of them is beyond sustainability.  And they add no value as no one reads or understands them. 

I am becoming a cynic I think.  

More happily retired every day.  Sorry, just woke up from my nap 😁

13 hours ago, imchipbrown said:

More happily retired every day.  Sorry, just woke up from my nap 😁

 

Brag 😅

18 hours ago, Below Ground said:

I would also note that I often find people who are primarily in the sale of assets love this law, while many of us on the operations side hate it.

You nailed it. They have the ears of the staffers who input this stuff.

22 hours ago, Bird said:

At this point, with my career in the rear-view mirror, I am of the opinion that the retirement plan rules are fundamentally broken and unfixable. We have widespread noncompliance, both due to complexity and willful neglect. I can't say I've given it that much thought but maybe, just maybe, we need to move to some kind of mandatory employer contribution (SS after all is a mandatory employer contribution) that goes into some kind of DC plan...like a SH nonelective. Get rid of the auto-enrollment stuff, or at least make it optional. And increase the 401(k) max but decrease the overall DC 415 limits and get rid of cross-testing (if you want a DB plan then put in a DB plan!) and otherwise simplify. I am literally doing this on the fly so it's not like I gave it any previous thought, and my opinion is no doubt colored by working with small plans and largely taking TH contributions as a given. 

I mostly agree with you, other than fundamentally broken and unfixable.  Call me an optimist, but it is entirely possible to provide fully compliant plans at a competitive cost, even if the industry as a whole has widespread noncompliance. I stress simple design for simple goals, do not overcomplicate things.

As for mandatory contributions, I think that is where we are ultimately heading, but it will be both EE and ER.  I think we will see mandatory plans with mandatory contributions in the next decade. 

Ausrtin3515, you correct, but the entire US so-called "retirement system" is a complete mess, a s--- show, so this legislation fits right in.

21 hours ago, jsample said:

Now creating 1099R forms for employees who did not know that they were making catch-up contributions but had to have deferrals reclassified as catch-up due to a failed ADP test and somehow change sources from pre-tax to Roth...

Wait, what????  When was it said that recharacterization was going to trigger the ROTH conversion aspect???  I get the conversion as a 402(g)/415 limit issue since that speaks directly to the amount an HCE benefits from, but for anything else, no.

This is half the problem, all the hand wringing and jumping at shadows.  Instead, focus on the upcoming regulatory comment period, and work to build a unified voice that will result in reasonable governance.  You want ASPPA to advocate for the little guys, time to step up and say what the smaller providers need. Otherwise, we all better start figuring out who the 'big 5' will be. 

1 hour ago, Nate S said:

Wait, what????  When was it said that recharacterization was going to trigger the ROTH conversion aspect???  I get the conversion as a 402(g)/415 limit issue since that speaks directly to the amount an HCE benefits from, but for anything else, no.

This is half the problem, all the hand wringing and jumping at shadows.  Instead, focus on the upcoming regulatory comment period, and work to build a unified voice that will result in reasonable governance.  You want ASPPA to advocate for the little guys, time to step up and say what the smaller providers need. Otherwise, we all better start figuring out who the 'big 5' will be. 

It was never said.  I was ranting on potential consequences.  I apologize for jumping the gun and stirring the pot.

That is the case as far as I know.  If you contribute $15,000 and have $5,000 recharacterized as catch-up, you need to be taxed on the $5,000 AND have the money moved to the Roth source.  It's on the list of bazaaro world requirements.  Am I wrong about that? I hope so!

Can I presume that if your plan doesn't even allow Roth then those catchups aren't allowed at all, and instead of recharacterization any ADP excess would have to be refunded?

16 minutes ago, Bri said:

Can I presume that if your plan doesn't even allow Roth then those catchups aren't allowed at all, and instead of recharacterization any ADP excess would have to be refunded?

Yes, that is how I understand it.  If you plan does not allow Roth contributions, Catch-up contributions, that need to be Roth, would not be allowed.  So would you eliminate catch-up contributions for those only earning over $145,000 (as indexed) or just eliminate them for everyone all together?  We have a number of HCE spouses earning $30,000 and deferring $27,000, so eliminating catch-up for everyone would hurt them.

18 minutes ago, jsample said:

So would you eliminate catch-up contributions for those only earning over $145,000 (as indexed) or just eliminate them for everyone all together?

I don't think this is an option. The way I read 414(v)(7)(B), it says that if you have anyone to whom subparagraph (A) applies (that is, anyone who is eligible for catch-up with prior year earnings over the limit), then paragraph (1) (which is the right to make catch-up contributions at all) does not apply to the plan unless anyone who is eligible to make catch-up contributions can make their catch-up as Roth.

Man, I'm seeing a lot of negativity in this thread. Yes, there is a new law, yes it was rushed through at the last minute, yes it's complicated and yes it's going to change the way we do a lot of things. I get it that there is a lot of anxiety and not a lot of guidance yet. We've all been through changes before and we will all be through them again. Retirement savings is still worth it and our clients need us to be on top of this for their sake, especially now.

1 hour ago, austin3515 said:

That is the case as far as I know.  If you contribute $15,000 and have $5,000 recharacterized as catch-up, you need to be taxed on the $5,000 AND have the money moved to the Roth source.  It's on the list of bazaaro world requirements.  Am I wrong about that? I hope so!

That's my read of it.

I really like profit sharing only plans, even more now than ever. Nice to pair up with a cash balance plan. And why bother with participant-directed investments. Ah, life is easy.

@austin3515 @Below Ground

Nope, still calling the hypochondriac police on this line of thinking.  Section 603(b)(1) only references an amendment to the 402(g) limit.  414(v)(2)(A) only addresses the 402(g) dollar limit and the 415 compensation limit.  Recharachterization is not a 'contribution', it is phantom classification for excluding an amount for testing purposes only, neither the 402(g) limit nor 415 are impacted by a recharacterization.

The only time I can see a retroactive conversion occurring is when an employer allocation pushes the total over the annual additions limit where the HCE did not first exceed 402(g).

19 hours ago, austin3515 said:

I have clients with 300 employees who could not handle auto enrollment (generally because they have enormous amounts of turnover).

There are clients with 30 employees who would screw up auto enrollment, I don't think its a size issue. I have had auto enroll clients with more than 1,000 employees and lots of turnover handle them just fine, with an issue here or there.  

And you know, if you need cash to pay for the ambulance for that hangnail, we have a provision for that in Secure 2.0 as well 

On 1/14/2023 at 1:02 PM, RatherBeGolfing said:

There are clients with 30 employees who would screw up auto enrollment, I don't think its a size issue. I have had auto enroll clients with more than 1,000 employees and lots of turnover handle them just fine, with an issue here or there.  

And you know, if you need cash to pay for the ambulance for that hangnail, we have a provision for that in Secure 2.0 as well 

I have a client that I have serviced for years who we have "trained" to always call us before letting a person make deferrals.  During this call we review that person specifically and define that person's entry date.  This is in addition to reports we issue that define when people's expected date of entry will be, which we send to all clients.  Returning to the client I opened this comment with, she has 7 employees and usually has one termination and one new hire each year, so review of new entries is no big deal.  Would you believe she hired a person and before she called us, told the person she could enter the Plan on a date that was prior to her actual entry date under plan terms.  I suggest that this indicates that thinking universal auto enrollment is a good idea, is not in fact short sighted thinking.  Some client just can't handle it, no matter what you do to help them.  What you get is a frustrated client who dumps the plan leaving people with no plan at all.

Below Ground describes having trained a retirement plan’s administrator to call the TPA before making a particular kind of plan-administration decision.

Perhaps some processes would function more efficiently and effectively if an employer didn’t appoint itself as the plan’s administrator.

On 1/13/2023 at 4:47 PM, C. B. Zeller said:

Man, I'm seeing a lot of negativity in this thread. Yes, there is a new law, yes it was rushed through at the last minute, yes it's complicated and yes it's going to change the way we do a lot of things. I get it that there is a lot of anxiety and not a lot of guidance yet. We've all been through changes before and we will all be through them again. Retirement savings is still worth it and our clients need us to be on top of this for their sake, especially now.

It's totally unnecessary and making things way.too.complicated. Retiring in 6 months and cannot wait to get out of this field. Thanks to our "president" we can only look forward to more of this mayhem. 

Given that it appears that SECURE 2.0 now seems to have eliminated the ability to even do Catch-Up Contributions, perhaps the cheering sections will be subdued.  I am referring to Bloomberg New below at: https://news.bloomberglaw.com/daily-labor-report/secure-2-0-error-would-prohibit-401k-catch-up-contributions.  This, among many other sites, are exposing the truth of this law.  Yeah, we have all been through changes and have all needed to see our clients through.  That still doesn't eliminate the need for concern or the characterization of this "gem" as pure garbage.

Part of the SECURE 2.0 Act (Pub.L. 117–328) legislation President Joe Biden signed into law in December was intended to require the contributions workers nearing retirement make to their accounts to be post-tax Roth deferrals. The elimination of a key paragraph in the bill during the drafting process inadvertently eliminated catch-up contributions entirely.

Another link showing just how bad SECURE 2.0 really is... https://www.napa-net.org/news-info/daily-news/major-secure-20-error-puts-catch-ups-jeopardy-ara’s-graff?utm_source=MagnetMail&utm_medium=email&utm_term=dseals@ebspension.com&utm_content=COM_NAPA_eNews_1.27.2022_WIR&utm_campaign=Catch-Up ‘Muster%2C’ Markets Timing%2C %26 Grandfathered ‘Clock’

On 2/1/2023 at 12:07 PM, Below Ground said:

Another link showing just how bad SECURE 2.0 really is... https://www.napa-net.org/news-info/daily-news/major-secure-20-error-puts-catch-ups-jeopardy-ara’s-graff?utm_source=MagnetMail&utm_medium=email&utm_term=dseals@ebspension.com&utm_content=COM_NAPA_eNews_1.27.2022_WIR&utm_campaign=Catch-Up ‘Muster%2C’ Markets Timing%2C %26 Grandfathered ‘Clock’

 

As a tax person I can tell you now this will be fixed retroactively in a technical corrections law.   After every major tax law there seems to be a technical corrections law that fixes this kind of silly stuff.   The fact this kind of stuff happens so much is more proof of how rushed our laws are and how overly complex they are.   But as long as this was a typo and not a decision agreed to this will be fixed without much to do.