New benefits to help workers juggle retirement savings and other financial priorities have been approved for next year, but employers have been slow to adopt them in 401(k) plans.
Congress included the benefits in the Secure 2.0 Act, which passed at the end of 2022. The law included a host of provisions affecting retirement plans over the next few years, including two aimed at reducing barriers to saving. One allows employers to treat an employee’s student loan payment as eligible for the company 401(k) match, and another provides for emergency savings accounts within the retirement plan. Both are voluntary on the part of employers and were approved by Congress to start in 2024.
Yet most workers don’t stand to benefit from these provisions right away.
“Employers are tending toward moving cautiously on implementing the voluntary options from Secure 2.0,” says Craig Copeland, director, wealth benefits research, Employee Benefit Research Institute.
As of midyear, 25% of large companies had planned to offer the student-loan match, according to the institute. It does not have comparable data on companies’ plans to adopt Pension-Linked Emergency Savings Accounts, or PLESAs, but plan administrators say this option is less popular among employers than the student-loan benefit.
One factor behind the low uptake may be capacity. Secure 2.0 included some provisions that are mandatory on the part of employers, and companies have been focused on those so they can remain in compliance, experts say. One such requirement, a mandate that higher-income workers age 50-plus make their catch-up contributions posttax, was pushed from 2024 to 2026 to give employers and employees more time to adapt. Another requirement taking effect in 2025 mandates that all new plans auto-enroll their participants.
Another factor may be benefit design, at least when it comes to the PLESAs. While they acknowledge that low outside savings is a barrier to funding and maintaining a retirement account, many plan administrators say that the PLESA design has shortcomings. Having to go through an employer or plan administrator to access emergency cash may be more time consuming and less private than with an out-of-plan option. What’s more, there are concerns about the portability of the account when an employee leaves the job, and about access for workers who don’t qualify for the company retirement plan.
“We are pleased Congress has recognized the importance of emergency savings and included an optional provision in SECURE 2.0 to address this need,” says Dave Gray, head of workplace retirement offerings and platforms at Fidelity Investments. “That said, we feel even more can be done to support employee needs for emergency savings such as providing an option through the workplace, which provides more flexibility, portability, and simplicity for employees and employers than an in-the-plan approach.”
Fidelity has its own offering, Fidelity Goal Booster, that is not part of a retirement plan but is offered in conjunction with employers.
Workers without adequate emergency savings—defined as having at least three to six months’ worth of expenses set aside—are 13 times more likely to take a hardship withdrawal from their retirement plan than those who have a cushion, says Tom Armstrong, vice president, customer analytics & insight,
Voya Financial.
Other, more established vehicles can also help employees meet emergency expenses. For example, health savings accounts offer employees a tax-advantaged way to save for medical expenses, which are a leading cause of hardship withdrawals, Armstrong notes.
Despite their slow start, the Secure 2.0 benefit provisions may gain traction and eventually become a competitive advantage for employers that offer them, experts say.
Write to Elizabeth O’Brien at [email protected]
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