Episode 69: Fidelity and SECURE 2.0

Episode 69
Fidelity – Secure 2.0 Update

Please note: This is an AI generated transcription – there may be slight grammatical errors, spelling errors and/or misinterpretation of words.

Angela: So, I would say we knew this was going to be disruptive and perhaps in some cases appreciated how complex aspects of secure was going to be but maybe underestimated in other circumstances.

Intro: Covering the ever-evolving retirement plan landscape to help identify the biggest opportunities for plan sponsors, CAPTRUST presents Revamping Retirement.

Audrey: Hello, and welcome to Revamping Retirement. I am Audrey Wheat, and I am joined today by our Defined Contribution Practice Leader, Jennifer Doss.

So today we are going to dive into the almost two-year update on Secure 2.0, which passed on December 29th, 2022. So, since Secure 2.0 was such a massive piece of legislation. Jennifer, do you remember where you were when it passed?

Jennifer: I do, actually. So, I was getting ready to leave. It passed on December 29th, 2022, and I was getting ready to leave for Paris that day for vacation. And so I don’t know if it was fate that I read 400 pages of Secure 2.0 on the eight-hour plane ride to Paris or not, but that’s what happened regardless. So, I had something to do and not watch movies.

Audrey: Wow, Jennifer, you are so committed to, the fine contribution. I just, I can’t believe it. In between bites of your croissant. It’s just amazing. I’m glad you made it home safe and sound and have been here to lead CAPTRUST through the efforts regarding Secure 2.0.

With that, we want to bring on today’s guests, Angela Capek and Shanna Costa from Fidelity, who have both worked very closely on Fidelity’s approach to Secure 2.0. So welcome, Angela and Shanna.

Angela: Thank you for having us here.

Shanna: Thanks, excited to be here.

Audrey: Thanks, Jennifer: and Shanna, welcome to the podcast. We certainly appreciate you guys spending the time with us here today. Let’s start really quickly with some intros for you guys. So tell us what your roles are at Fidelity and how you’ve interacted with Secure 2.0 thus far. And Angela, let’s start with you.

Angela: Absolutely. Angela Capek, I’m a senior vice president in our Workplace Retirement Product Delivery Organization and have accountability for many of our core recordkeeping platforms and services for both our DC and DB offerings here at Fidelity.

Also, as part of my job, I work both internally and externally, when you talk about the regulatory and policy space, with members of our Policy and Government Relations relationship team, and I’m also a member of the Spark Institute Board of Advisors, where we’ve had a number of working sessions and many discussions relative to all things Secure 2. 0 over the last several years.

Shanna: And I’m Shanna Costa, I’m a vice president in our Workplace Consulting Organization, and I’ve been working closely with Angela and her team, because I lead a team that works with our clients on their strategic plan design and compliance needs. So, I’ve been having a lot of client conversations around where they intend to go with Secure 2.0.

Audrey: I want to set the stage for this episode. Like we talked about, it’s hard to believe we’re coming up on the two-year anniversary of Secure 2.0 this summer. Your firm Fidelity released this great report called Secure 2.0 Optional Provisions Survey Insights. It’s publicly available on Fidelity’s website. In that survey, over 300 plan sponsors across various industries and plan sizes responded. With that lens in mind, we want to take a victory lap of sorts.

So, what are you most proud of, with what your firm has accomplished in the nearly two years?

Angela: So, I think what’s really important to note as well is while we’re coming up on the two years, our preparation efforts really began a year or so before then, as the various bills were being introduced that eventually became to be what we know as the 92 provisions within the Secure 2.0 package. as each new bill came out, we took an iterative approach to review what was in each of those, to understand how those, we’re going to impact participants and plan sponsors. And then ultimately, what would that mean to us as a recordkeeper, both from a, a technology and system standpoint, as well as our ongoing operations support and the experience to serve our stakeholders. Rewinding back there a little bit, I’m really proud of the effort that we put in up front that really allowed us to hit that ground running because, December 29th, 2022, I was also getting ready to head to my beach place and have a little, R&R myself. And, it was, it almost felt a little, I say a little uneventful because I feel like we did so much preparation there. Certainly, there were things in the final package that were not exactly, what we thought they were going to be. And we needed to, some time thereafter to work through that as well. But we wanted to make sure we were prepared from a communication strategy standpoint, not just internally, but certainly to get out in front of our clients and advisors as best and as soon as we could with a well-rounded plan and that plan is something that we’re refreshing on a quarterly basis right now.

So, um, you know, and that’s been key. Communication has been key to all of this. And I’m really proud of, the effort that I know we’ve put into it to try and get the most current and accurate information out there to our clients and advisors, because this has really been a, a big partnership, from day one.

A lot of patience that we’ve demonstrated ourselves. I know that we’ve asked our clients to also be patient through this process as we figure things out because we didn’t have all the answers out of the gate. And candidly, we still don’t have all of the answers. We’re working through things and there really wasn’t any time to waste. that prep work allowed us to really, jump right into those provisions that needed the most immediate attention. You know, there were the variety of RMD provisions, that we needed to get after right away. And the Roth catch up obviously taking center stage for the better part of 2023.

But we turn the course now where we’re finding a balance with some of the optional provisions as well, while maintaining the right focus on the mandatory remaining items as well. I think the survey that you teed up, that we conducted really is one of those listening posts that we were able to use, to help confirm, that voice of the market and voice of our customers. Shanna definitely worked really closely, on a lot of the survey itself, as well.

Shanna: Happy to jump into the details of the survey. I would just echo quickly shout out to the partnership we’ve seen across the industry with all our plan sponsors and advisors and payroll providers. It’s truly been great to be a part of the collaboration and know that we’re going to continue to collaborate over the months to come. So, getting into the survey, this is something that Fidelity did really focus on the optional provisions of Secure 2.0. With over 90 provisions impacting retirement, we knew that it was important to make sure that we, our implementation strategy remained aligned with our client. And so, the article that you mentioned has the top five optional provisions that came out as of most interest to plan sponsors and that was across plans of all sizes, all industries, and in order.

It’s increased catch up contribution limits.

Self-certification of withdrawals.

And then withdrawals for federal disasters, victims of domestic abuse, and emergency expenses.

And there’s a lot of good reasons for each of those. so, starting with the very top provision, the increased catchup limit, this was consistent whether we were looking at our clients by size or by industry.

And what’s great to know is our actual adoption rates are now tracking with what we saw come through in that survey. Nearly all of our plan sponsors are enabling this provision for 2025. and they’re really sharing with us that this is really in line with promoting retirement readiness and really enabling their participants to continue to maximize retirement savings whenever possible.

The self-certification is important to our plan sponsors because they are viewing this as a way to streamline plan administration. And we know anything that reduces operational risk and creates efficiency is important.

The next 3 optional withdrawals, these are where we’re seeing a little bit more discussion among our plan sponsors.

While there’s definitely still a lot of interest, we do appreciate that there’s a balance here between allowing people access to money and having a potential impact on their retirement savings. For the federally declared disasters, we think most plan sponsors will move forward with this. This is a time when participants will really need access to retirement funds, help them recover from a situation that could be impacting their home or their job.

And it was really prominent across all of our respondents, and I’ll say even more prominent or highest level of providence and across the finance and insurance industries. For the eligible distributions for domestic abuse victims, we anticipate around three-quarters of plan sponsors will move forward with this provision.

And while there is definitely still discussion here around, access to retirement funds, we are hearing that this is really aligned with organizational policies to help support individuals who might be at risk.

Emergency expenses is the last one, and it rounds out financial wellness remaining a top priority for clients across all sizes, and here we expect to see about half of our plan sponsors allowing for emergency expense withdrawals in the future.

Audrey: So I think we’re really seeing, there is no one size fits all approach and it’s a very personal decision, plan by plan, case by case of what plan sponsors think is going to fit best with their population. So, both of you, Angela and Shanna, you have a window into the plan sponsors decisions. Can you talk about what you’re hearing specifically from plan sponsors as they are weighing the pros and cons of the optional provisions?

Shanna: I can do that. I can start. I definitely think where there’s any provision that has the opportunity to increase retirement savings, plan sponsors are absolutely interested. As soon as we can administratively support that, we’ll get it into our plan. As I alluded to earlier, though, those withdrawal provisions are a little bit more of a balancing act. There’s a lot more of a philosophical decision that needs to happen here around the impact on retirement readiness, but really helping employees when they may need it.

It’s definitely turning into a far more holistic conversation going just beyond the 401k plan. How do those provisions align with organizational culture?

Are they maybe filling a gap that across all of the benefits package or a financial wellness offering? Definitely have also seen, DE& I efforts come into play here. as an example, student debt match. I was part of a conversation where a plan sponsor was really on the fence about whether or not this is something that was right for their organization. And then as they started to look at the statistics around who in their organization was impacted by student debt, it really became obvious to them that this provision would be very important to their employee base.

Angela: Yeah, and I would agree, Shanna, right? as you talk through just, the provisions, the optional provisions, our survey, really called out in the interest there, some of the optional provisions were in the process of rolling out right now. So, when I look at the new, withdrawal types, we actually had a small number of early adopter plan sponsors launch those capabilities in the late September timeframe. With opt in ready for later in the year for a good number of other plan sponsors as well. So, I think out of the gate with all that’s going on and perhaps the time of year, we’re seeing maybe a little bit lower adoption out of the gate than we were thinking relative to, the actual opt ins.

With those withdrawals, it was definitely something where, you know, about the majority of them who were looking to adopt added all or looking to add all of the withdrawal types and not make differences. However, there were definitely a good number of variations in that with, some plan sponsors just wanting to add a single withdrawal type across the board.

Qualified disaster was the most popular one in terms of the proactive op ins so far, with equal interest really across the board, whereas some of those other withdrawals were having a little bit more interest in smaller plan sponsors than with larger ones.

Jennifer: Yeah, I think that the uptake that you guys are seeing is really interesting because if I think back to 2 years ago, which seems like it’s been forever, but only 2 years. I think I’ll celebrate by going to Paris again, potentially. It’s hard to say,

You know, they have to do with the tax implications, like really boring stuff, right? That’s why they, these effective dates sometimes get chosen. So I think about federal disaster, for instance, I think that was like retroactive, so it was effective almost immediately and retroactively. here we are two years later. Yeah. Just now being ready to say, okay, we’re, we can implement this today. And here’s a couple of other things we’re ready to do too.

There was this period of time, as I remember it, where people were really excited and then we said, hold on a second. Again, we’re not ready to actually implement these, administer these, anything like that. So, people stopped talking about them for a little while. I feel like, and then here we are now ready to go.

Do you feel like a lot of people were ready to make these decisions when, you know, you guys were ready to start talking to them and I don’t know if that varies by a smaller plan or a larger plan or a plan that has a consultant or a plan that doesn’t have a consultant, but I guess any differences there, between plan sizes or plan types or anything like that would be interesting,

Shanna: I think that the provisions that were of interest to our plan sponsors were pretty consistent across plan sizes, where I do think we see some difference as highlighted, though, is in the timeline that they are planning to make those changes. And so it’s really a factor of bandwidth and other priorities that are going to inform the implementation timing. And so we’ll continue to watch it.

Angela: Yeah, the timeline is where I was going to go as well. With all the different priorities that plan sponsors do have and it’s not like we’re reaching out to our plan sponsor community and saying, hey, you only have one shot to get in on this, right? So, it’s here’s the information, here’s how it will work, and when you’re ready, when you want to do this, you’d be able to work with your client teams and make that happen.

Audrey: A really good point, Angela. It’s not a one and done. This is not like an open enrollment situation where you only can make a decision once a year. I think that, yeah, some plan sponsors and advisors have been in the mindset of okay, when’s our chance? When’s our shot to do this? It’s an ever, present option that’s going to be available. There’s just a specific start date that we’re waiting for.

Angela: I think there was so much was part of the package. That there was so much question, so much interest from early on, whether it was optional provisions or the mandatory provisions. It was just, there was so much and everyone was just trying to get acclimated. And I think as that initial buzz following passage died down and, we got the right, information out of, what are these things? What are we doing? hold on tight. we’ll get some more information to you. I think that helped to just set the right expectations and it gave, plan sponsors and advisor that time to also do the same.

Audrey: Sure. So, I would imagine that many of our plan sponsor listeners feel really validated that their peers are grappling with the same decisions and there’s a lot of different mindsets that people are going through. Let’s shift to, again, thinking that we are nearly two years into this. For you all, what has surprised you the most about Secure 2.0?

Angela: So, I would say we knew this was going to be disruptive and perhaps in some cases appreciated how complex aspects of secure was going to be but maybe underestimated in other circumstances. So we knew it was going to take village and a lot of partnership, across our, whole Fidelity organization internally between all, phones and operations and product and etc. as well as working with our plan sponsors and their vendors, especially payroll vendors, so it’s taking a village, and I think probably them some. I guess what I would say is maybe not surprising, but perhaps a bit of disappointment in the fact that we are still waiting for guidance on the Roth catch up provision.

So the two year delay was absolutely necessary, and it gave all of us just that quick minute to pause, take a deep breath, and then it almost felt like, all right, there’s other mandatory things, there’s other things that our plan sponsors are really asking us for on the optional front that we need to get after here, and we don’t have all the answers that we need yet, right?

We took that as an opportunity to pivot to the higher catch-up limit work, which, as Shanna noted, the vast majority of our plan sponsors. will be having enabled come January 1st. I was fortunate to participate in a number of conversations with regulators, where both Fidelity and other record keepers were present.

And, we stressed that the delay was first and foremost, super important and needed in short order. But we very quickly followed on with We also need answers to all of the questions that we have on this provision in particular.

There’s just so much complexity when you talk about how we can best integrate thousands of plans with hundreds of different payroll solutions, of all different sizes and processes.

We can’t just sit back and wait, but at the same time what none of us really wants is to go down a path and then have to change course. So it’s a lot of work. It’s expensive work. and again, it’s not just, Fidelity and other record keepers, It’s a lot for our clients, and their payroll providers to also have to deal with.

So, at the end of the day, what matters is that we get the right experience for the plan participants and that has to be our kind of north star to make sure we get things right. And at the end of the day, if contributions aren’t processed correctly, and we have any kind of rework, it’s all of us that are feeling the pain for that.

The clock continues to tick. Got a little bit more than a year to go, so hopefully we’ll see some of that guidance soon.

Jennifer: Shanna, I was pretty certain you were going to say what surprised you the most was the name of Secure 2. 0 and apparently that we’re just, we’re sticking with that. I mean, I’ve even already heard Secure 3.0, so get excited.

Um, so with those surprises in mind that you just mentioned, I guess, is there anything that you guys feel that during the course of the last 2 years, you thought you were headed down one direction? You’ve had to change course. I don’t know if that’s guidance that you got you thought would go a different way or you just understood something differently than what you had originally thought, but anything that, that you feel like you guys had to move course on.

Angela: I think what helped us was one, all of that early on analysis and discussion that we had on what were likely to be the provisions and having just a good understanding of where we needed to look and dig. But, I think what really helped us at the end of the day is just our infrastructure, right?

The foundation to our record keeping system, and the scalability. Now, that’s not to say that we don’t have plenty of work to do on it, and don’t look for opportunities to be more efficient, in how we do things. and I’ll just circle back to the Roth catch up, for example. while the provision was actually delayed, we were well underway with client outreach to basically add Roth to, thousands and thousands of plans last year, and many plan sponsors said, I’m going to have to do this in two years.

Anyway, the process is underway. Fidelity is going to support me and get it done now. We’re going to move forward with it. And while we certainly add Roth to plans on a regular basis, not a lot of, magic that happens with that. But at the same time, we were talking about thousands and thousands of plans that we needed to take that action on in a short window of time.

Our foundation allowed us to do that with some additional technology tweaks to help. And so that was a good win for us last year to be able to get that done and get a head start as we come back into early next year and undertake the same process again.

Audrey: I’m sure it’s super validating to be like, okay, we have the breathing room and now we’re able to still get ahead a little bit.

So to wrap up the episode, what are you two looking forward to as it relates to Secure 2.0 other than it just being behind us? Or that could be your answer too.

Angela: Yeah, I think it’s going to be that gift that keeps on giving for some time, right? I think one thing to keep in mind is that there are a lot of provisions out there that ask regulators to take a look at things and conduct information-gathering and perhaps release some new regulation that we don’t even know what that may or may not be yet.

So, the gift that keeps on giving is a term that I’m definitely using when it comes to Secure. But certainly, I think putting some of those big provisions behind us, like the Roth catchup a year or so out from now, is definitely one of those that I think will just be a great accomplishment for the industry as a whole, candidly, to say that, we got that done.

Shanna: I would agree. Definitely more guidance. I’m looking forward to.

Audrey: All right. So, everyone book a flight to some amazing destination and I’m sure the guidance will be released that evening and you’ll have your in-flight reading plan for you.

Jennifer: That sounds like my life. Yes. Shanna, Really appreciate you guys walking through all this. I know it has, like I joked around, it’s only been two years. It feels like it’s been much longer, but you guys have really been in the thick of it too. And so as much as Audrey and I have felt it, I’m sure you guys have felt it exponentially more than that. And so we certainly appreciate all the work and the pivoting you guys have done and the prioritization that’s had to go into this and all the conversations you’ve had to have with. You know, like you said, it becomes a little bit harder almost to have these philosophical conversations than if it’s just about financial or monetary impact, right? Like sometimes when we go in and we start talking about things like auto enrollment or auto escalation, those have financial impacts to plan sponsors. But a lot of these things are just about how do you philosophically, want to position your retirement plan? Do you want to allow for a lot of these things?

Distributions, which could be very well validated for individuals, but could certainly add up to a lot of leakage right over time. And I think that’s the worry.

So again, certainly appreciate you guys, sharing all of that perspective with us.

And I’m sure there will be much more to talk about in the future.

Okay. So now onto our question that we ask all of our guests, the hardest. So Angela, Shanna, what does retirement look like to each of you? And Shanna, I’ll start with you.

Shanna: Oh, that’s a tough one. And it’s definitely something that I–has evolved and I suspect will continue to evolve. But for me, I have changed from thinking about retirement being, a day that ends my working career to something that I, I’ve been working towards, and certainly Secure 2.0 is highlighted. It’s a lot about the financial, but the closer I get, the more I think about it as being mentally prepared, and just having that stuff, that’s going to fill in what used to be your workday, and what’s going to be engaging and interesting, and it’s definitely going to be travel without any Secure 2.0 reading materials.

Angela: I’ll echo the lack of secure, or any other Secure 3.0, 4.0, whatever they want to call it, materials. So, I guess I would start by saying, I definitely appreciate and feel very fortunate to have worked my entire career in this industry in retirement, benefits. And, it certainly has helped me personally prepare. It’s helped me to pass on messages to my parents, my brother, to friends. And, I’d say a little bit like Shanna, I don’t know exactly what it will be yet. I definitely have some time to think about it. it’s not right around the corner for me. With that said, my husband is about six years older than me and he’s thinking about it more and more.

So maybe he’ll be able to be that guinea pig for me and find out what works and doesn’t work when you step away from that. Long tenured desk job that you’ve had for all of those years. So, he can test the waters out for me. I can sit back and observe, but I’m all for sitting on a beach with a nice cold drink very often so that’ll probably definitely be on the agenda more often than not. Once I step away and quote unquote, retire.

Audrey: Very good. Very good. And definitely, echo your sentiment on no security point, no reading materials or anything having to do with the defined contribution industry, hopefully. Once again, thank you, Angela and Shanna for your valuable insights and for your time and for Fidelity for being such a great partner to us.

Just a reminder to our viewers, please like, and subscribe, and share our podcast with any of your planned sponsor friends and we look forward to next month.

Thanks, everyone.

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