Michael: Hello everyone, and thank you for attending today's webinar. Security to Incentivizing Increased purchases and Savings. Before we begin, we want to cover a few housekeeping items. At the bottom of your screen are multiple application engagement widgets that you can use. All of these can be moved, resized or minimized. So feel free to customize the desktop layout as you see fit. Additionally, today's session has been accepted for one hour of CE credit by 360 IWC and CFP board designations to receive CE for this live webinar. It's important that you join the webinar using the email address associated with your 5060 training and designations account and using the link that was sent directly to your email. You also must be in attendance for at least 50 minutes in order to qualify for CV credits next. For those who do not qualify. Excuse me, for those who do not qualify for CE credit, there is no additional action required on your part. You receive email confirmation as soon as your CV is processed. If you have any questions during the webcast, please submit them through the Q&A widget. If your slides are behind pushing F5 and your keyboard will refresh the page.

An on demand version of the webcast will be available approximately one day after this webcast and can be accessed using the same week that you joined for this one. You also see a resources tab on there with the number of resources included in the slides from this presentation. Those will be sent out as well, so please feel free to view those as well. So I'd like to take a minute, introduce myself and our other speaker for today. There's room for. Forward. My name is for Broadridge Retirement and Workplace, which encompasses both the 60 Solutions and Matrix Financial Solutions business. Recently you may have seen we've undergone a name change to retirement workplace to really help illustrate our commitment to those two industries. I'd also like to introduce my fellow speaker today, Blake Willis. Blake is a partner at July Business Services and is July's Chief Operating Officer. July is a leading national retirement plan services provider, supporting thousands of employers and their employees with high touch tech enabled retirement plan services. In his role, he leaves July's sales and operations team. And with over 25 years of industry experience in all facets of retirement plan, sales and operations. Blake works to enhance to manage, focus on sales operations and service excellence. Blake has a master's degree in accountancy from Baylor University and a certified public accountant. So as we move forward to the kind of name content that we're going to cover today.

Blake: We're going to.

Michael: Focus on a few key provisions and secure, most notably around pension contributions, new incentives for employees to contribute, increasing the coverage for certain types of workers and distribution considerations, including around hardships and emergency withdrawals. For each topic, we intend to share some information about the provision itself, but then also want to dig in to what does that mean for the advisor for the retirement service provider and what you might be able to expect of some next steps. We'd love to have this be an interactive conversation, so please feel free to ask questions and engage with us in the Q&A box on the desktop. So as we move forward to the next slide, I want to kind of just give a mixture level set about secure and give a little background information before we dive in. So right secured to not. Oh, this is really some of the most important retirement legislation we've seen since October. There's a huge shortfall in funding within the retirement plan industry, around $33 trillion in total savings in the US, but a shortfall of around $11 trillion. And that can be attributed to a couple of things, most notably a low retirement savings within individuals, a lack of access to and participation in employer sponsored plans, and really kind of the underfunding of DB plans in the public sector and the shift from the traditional DB model to the defined contribution model and how that's changed things. There's really kind of two simultaneous responses coming from various government agencies at the moment to try to address this shortfall. One is the federal response, so that is secure to grow, and that's what really what we're going to be covering most time today.

But really the goals there are around increasing availability, increasing participation and increasing flexibility. While there are certainly some things related to retirement plans that are absolutely required as part of security. In general, it's more encouraging additional savings and encouraging new plants. On the other hand, you've got the state response. So many individual states are starting to have their own mandates related to retirement plans, typically around the creation of state IRAs. So a number of states have already implemented plans, a larger number have enacted plans that are pending implementation, and a number of other states have proposed legislation through through their Congresses right now. You know, I think it's important and I'll use an example here. Fidelity recently did some research from their Small business retirement index, which showed that only one third of small employers currently offer retirement savings plans to employees. And there are a couple of different reasons why almost half of those small business employers that were surveyed don't believe they can afford it. 22% felt that they're too busy to worry about this stuff and 21% don't even know where to start. So this is really the perfect opportunity for all the folks on this call to kind of help solve some of those perceived issues. For the small business owner, particularly around that 21% who don't even know how or where to start. That's something where as an advisor, you can definitely play a role to help educate them. And so today we want to cover a number of key areas of provisions related to secure that you can get educated on. Make sure you're partnering with the right partners on ARM and then ultimately educate the small business owners who are starting plans.

Blake: Michael, can I jump in and add something here?

Michael: Absolutely.

Blake: When I look back over my 25 year history, I'll tell you, I think there has never been a better opportunity to to prospect in retirement plans than what we have the conversion of secure 2.0 with the state mandates in that with you know six states already implementing and so many more on the way every small business, basically every small business is going to have to take action. And you mentioned, you know, they're not doing it because of they think it's too complex, too expensive. They don't even know where to start. What better opportunity to have conversations with those people and when they're forced to do something from many places, from the state response, where now there is more of a flexibility and, you know, more tax savings, you know, tax credits and those types of things where we have even more incentives to encourage plan sponsors to help overcome some of those challenges. So I see not only, you know, encouragement coming from the federal government, but mandates coming from state, which I think is just a perfect storm for those advisors that are interested in prospecting and setting up startup plans with small businesses.

Michael: Yeah. No, that's a that's a great comment. I agree completely. And I think, you know, again, speaking to those incentives on the federal side, obviously the state side is going to mandate things. It's going to increase the number of plans and participation. The more I think we can do as a retirement plan industry to incentivize and get this stuff set up. The more influence we get to have in terms of how that that environment is going to look as opposed to having it dictated to the industry by by state governments. As we move to the next slide, let's take a look at, you know, as we dive into six years. You know, I mentioned earlier kind of the three high level goals of secure. Right, increasing availability, increasing participation and increasing flexibility. If you joined the Secure webinar series by Broadridge last month, which was led by investor and Pete Swisher from Pension Resource Institute and Group Planning Systems, and John Faustino from API 360, they really kind of focused on that first, that first circle, right? Which is around creation of new plans through incentives provided tax credits as Blake mentioned, the creation of new types of four on one K plans. And so that was, that was really covered last week. And I definitely encourage you to go back if you did not see that one. Take a look at the recording. This is a really great session. The other two areas here on this slide are around the increased participation and the flexibility. And so we're really going to focus more on those sections today. I'm Blake and myself are really kind of on the on the participation right areas like increasing eligibility for part time employees, increasing participation through incentive employees with new new financial incentives that were available for prior to secure. And then I think flexibility is also one reason that I think a lot of individuals don't participate in their retirement plans when they do have access to them is, you know, they're worried about their money getting locked up in a plan.

And, you know, a lot of Americans are struggling to make ends meet. They're worried about making sure they have enough money to cover emergencies or surprise bills. So locking your money into a retirement plan is definitely a concern of folks now. And so flexibility, I think, is important and secure. I like a number of new provisions that do allow for more flexibility to take money out of your employer sponsored retirement plan to cover some of those emergencies. So we like to kind of focus on those two areas today. So as we move to the next section, real quick, a little bit about kind of more on that opportunity. So, Blake, I think you really hit on the key points here earlier about it's a perfect storm for this. It's a perfect storm for this to increase witness to new attention. And I think for us in the retirement plan industry, it's a fantastic time because we're getting the opportunity to help underserved American workers really build up their retirement accounts and help them get a financially independent future, while also it's an opportunity for us to benefit commercially. There's new business growth opportunities out there for you as the advisor, as a retirement service provider. There's around 650,000 or so retirement plans out there in the U.S. today, and many estimates say that by 2028 secure may essentially double that figure of number of new clients, leading to increases of 60 million or more new participant accounts and 7 trillion in new retirement assets. So there's a really large opportunity out there for our industry, and there's an opportunity to be a first mover in this space. And so everyone who's joining this call right, I think recognizes that at the very least, you want to educate yourself.

But it's it's an opportunity to move your business forward as well. So I'll hit on three kind of key areas there that really are about some of the accelerated growth that we've talked about, you know, with just the creation of new plans. That's great. Many of that will be smaller plans. But with auto enroll and auto escalation features, we're going to expect those small plans to grow faster than they would have previously. So there's going to be a lot more opportunity there. There's cross-sell opportunities. You know, small business owners presents wealth related opportunities for the financial advisor, opportunities to to help prospect with different types of business beyond the retirement side. And then also, you know, defensive play if you're a retirement plan focused advisor today, if that's your bread and butter, it's it's incredibly important that you are well versed on this stuff and that your business is primed to take advantage of it because the generalist advisor or the advisor maybe dabbles in retirement plans. You know, they're going to be engaged in this. There's volumes for it. And if they're going to be interested in maintaining that connection with their high net worth clients who own small businesses. And then if you flip that right for the advisors, maybe specialize is more on the wealth side. Maybe you've got a couple of retirement plans here or there. The same logic applies in terms of just defense. If you're not in the retirement plan space, if you're not setting up these plans and the small business owner needs a retirement plan and they're working with the retirement focused advisor, who do you think that that that small business owner is going to want to work with for their wealth business if things are going well, the retirement side? So I think both both types of advisors have a real strong opportunity here and they need to be in the space in order to to maintain your market. Okay, So as we let's dive in then maybe take to the next section where we really start to dive into some of these provisions. I think maybe we want to take a look first at some of the catch up contribution provisions that were in secure. So maybe if you like to kind of walk us through some of those key provisions and we can talk through that.

Blake: Great. Yeah. So, you know, it's interesting. All the things we're going to talk about, obviously, we're focusing today on kind of the provisions that, you know, help encourage, you know, participation in. You mentioned that there's so many different angles to look at the secure 2.0 legislation we picked out, the ones, you know, specifically focused around that. And, you know, to start off with enhancing catch up contributions, it certainly is about, you know, a way for people to put more money into the plan. So this provision allows people just 60, 61, 62 and 63 to be able to fund an even larger catch up contribution. So there are there are some details about, you know, what it is. There's also simple plans that have a larger catch up limit as well. So it notes there $10,000 is the catch up is actually the the greater of of 10,000 or 150% of the catch up limits. There's some details there, but actually might be more than $10,000. So essentially what will happen is, you know, age 50, when you hit the catch up to age 59, you get the normal catch up rules that we all know today when you're ages only 60, 61, 62, 63, you can put in the even larger catch up amount and then you go back at age 64 to what we all know today is the normal catch up limit and we'll see this rule applied beginning in 2024. So, I mean, that is just right around the corner from an effective date. So and I may see this several times during our our our time today, but. Education participant education, particularly those that are making catch up contributions today that, you know, next year are going to be in that 60, 61, 62, 63, get ahead of that conversation, get them planning for what changes they need to make in payroll, their deferral elections.

You know, all the things that need to happen from a communications standpoint, because for those that are maxing out their deferrals, doing full catch up today to tell them there's an opportunity to even fund more, is there's probably I'm I expect there's going to be we expect there's going to many many participants that are in those four age categories that are going to want to continue to have to put more money into the plan. The second part related to catch up contributions. And this is where it's subjecting all catch up contributions. As Roth, This is not going to be this is not going to be an option to that, that we have participants that that make more than $145,000 are going to be required to put in all catch up contributions as Roth, even if they've otherwise elected, to put the deferrals in as pretax, they must go in as Roth. When we look at the whole spread of all 92 provisions across this legislation in secure 2.0, there was one that raised the money, that raised the revenue for the one main one that raised the revenue to make the tax that the tax on this work and that is this provision, section 603 where Roth where catch up contributions must be done as Roth it's a revenue raiser for the government think think of the trillions of dollars that are funded as catch up contributions where tax is going to be paid on those dollars today. This is also effective. This one is effective. Sorry, for 2024. The other one's effective. I think I mentioned 2020 where it's actually 2025. So the higher catch up limit is 2025. This Roth one is the one that's really right around the corner. It is 2024. Again, another place that I think. Participant Education is critical. I see. This is going to be rife with errors from payroll, problems with plan sponsors that, you know, the payroll system isn't going to know to automatically move somebody deferrals over to from pretax to Roth. And I expect there'll be many issues that we have to catch on the back end at the end of the year when we're doing the testing to get those things fixed. But then of course, there's tax issues and other issues that we have to deal with related to that. So this is one that again, is now just six months away. And there's still a lot of, I think, system set ups with payroll and retirement providers that need to get that still need to be set up to be prepared to to address this this rough catch up contribution issue.

Michael: Yeah. No, I think if I can add a couple of things there. I think you talked about the test scene and how you definitely expect there to be a lot of work there. My understanding is that in security that also this provision, it's defining wages with $145,000 or more wages, using the Social Security definition of wages, which may or may not be exactly how the plan is defined in compensation. So that's a consideration that that folks will have to have when they're trying to calculate what employees are eligible or not eligible for this.

Blake: Yeah, I see a couple of questions even come in. How are the higher catch up limits going to affect non non safe harbor plans? Well, catch up contributions are not tested. So even the higher catch up limits will not be tested on the ADP test. So it doesn't hurt a traditional 41k and ADP tested plan. So no concerns there. What is the plan doesn't allow Roth. That's an interesting question. It's a plan that doesn't allow Roth. Then they are not they are not required to have the employees put the money as Roth deferral. So first, the plan must allow Roth deferrals to then subject those catch up contributions to Roth.

Michael: Do you think, Blake, based on your experience? So in that scenario where a plant doesn't have growth today, what there's these new provisions out there allowing or requiring growth for the higher net worth employees. Do you anticipate any plans, maybe adding Roth features that didn't have Roth before for this? I know you said it's not required, but anticipate any changes to that percentage of plans that that don't have brought today?

Blake: I don't see anything from the provisions from these two provisions that would drive me to think that there'll be, you know, anything moving the needle as far as the more plans adopting Roth. I mean, we've we've seen that certainly over the last ten years in more adoption of Roth and certainly heavy, heavy majority of the plans now have it. I really don't see anything from these two provisions to to to to change it. But I think Roth is still a very active and important conversation to be having with business owners because, you know, even going back to, you know, you can't make a Roth IRA contribution if you're making that kind of income, you're you're phased out and then obviously you get the much higher limits in the 401k plans.

Michael: Absolutely. That makes sense. Yeah, a couple couple questions came in. So just to kind of, I think, restate for the for the first provision on the higher catch up limits, that limit of $10,000 in the catch up applies to individuals who are 60, 61, 62 or 63. Prior to that, they're at the traditional limit. And then after that, once they hit 64, they go back to that. They go back. Correct?

Blake: Yep. That is correct. And it is to clarify and I see a question coming in about it. It is beginning in the 20 to 25 year plan, years beginning after 2024.

Michael: So it's. Right. Any thing else on catch ups that we want to cover today? If not, I think we can probably.

Blake: One of the questions here, just grab this one other question says the catch up limit. 145,000 before Roth kicks in, only for the earned income from that employer. Yeah, it is maybe kind of going back to Michael's comment earlier about, yes, it is gross wages that we're going to be looking at as far as the definition of of compensation, earned income there. So that is how we're defining that. You can't use Roth deferrals to, you know, lower your, you know, federal and federal income base and therefore lower your 145,000.

Michael: Right. And that is 145,000 from the previous year's income.

Blake: In history the previous year. Interesting is previous years. From that employer it's not previous year what you may, but it's previous year working for that employer you're working with today. Well, if I change jobs in 2024 and that's my first year working there and I make a $200,000 salary in 2024, I didn't work there in 2023, so I am not subject to that rule. Of course, then I'd be subject to it in 2025 in my scenario. But yes, it is from that company in the prior year.

Michael: Great clarification. Thanks, Blake. All right. So pension contributions, right. These are generally for individuals who maybe have higher compensation, more money to put away. Let's talk a little bit about financial incentives for employees to get them into the plan in the first place. A couple of new interesting developments coming out of Secure on this one.

Blake: Definitely some interesting things here. So the small, immediate financial incentives where you can give de minimis financial incentives like a gift card, I think would be the typical approach. We're kind of hearing it under $25 kind of range as far as a de minimis amount, but as incentive to participate in the plan. So as an advisor, I'm from I'm aware of advisers already that are doing this. They'll take, you know, $10, $5, $20 Starbucks gift cards to enrollment meeting. If an employee, you can you can say at an enrollment meeting, if you sign up for the plan, you get a $10 Starbucks card. So these financial incentives can be used to incentivize participation. The rules are that it obviously has to be de minimis. You can't use plan assets to pay for the cost of this financial incentive, but there will certainly be providers like advisors, record keepers, that I believe will use these benefits. Financial incentives to encourage participation. The student loan repayments obviously has gotten a lot of press, probably more press than than much of anything in the secured 2.0 legislation. But it does allow employees that are making student loan payments to treat those student loan payments as if they are deferrals in the plan and receiving the equivalent matching contributions on those student loan payments, again, as if they were deferrals going into the plan.

A couple of things apply here. You know, the 402 limit, the maximum deferral limit applies between adding up your deferrals and your student loan payments. You do have to have the same rate of match that you use on match of deferrals and matching student loan payments, same vesting schedule, things like that. There is a separate ADP test that runs, so a person has a question earlier is the catch up contribution could affect the non stay part of the ADP tested plans. A similar response here Student The matching on student loan payments or even the student loan payments that we treat as deferral themselves are not are not tested or they're tested separately. I should say on the ADP test. This does applies to fall in case four of three B's samples for 50 sevens. This is an optional provision. I know we get a lot of questions about this. Is this a mandatory provision that we're going to have to allow in our plans? Now, this is the option of the plan sponsor to allow this the student loan repayment option. And then finally, the last the last kind of bullet point there, which I think is a really interesting and we'll see this even in some of the distribution options. We can now rely on employees. Self-certification employee tells us I made this much student loan payment that applies the plan sponsor does not have to receive documentation on that employee. You can self-certify that they made those student loan payments.

Michael: Now, that's a really good point. We're definitely seeing that a lot out of some of the security issues. And like you mentioned, we'll talk about that more in a little bit with the student loan payments. You know, July provides recordkeeping services. You know, so your perspective, I think, would be interesting here in terms of when the the employer, the sponsor, is making that matching contribution. You know, is there anything different that's happening between the plan sponsor and the record keeper in that case? How are you guys planning to handle that?

Blake: Yeah, certainly. We'll need information from the plan. Sponsor like we get census information from the plan sponsor. With the deferrals, we will need the plan sponsor to provide us information about the loan payments that have them so self-certified by the employees so that we can then calculate the reflecting matching contributions that need to be funded to the plan on that participant's behalf. So that's really the extra step is one extra data point that we'll need to gather from the from the from the plan sponsor.

Michael: Gregory I know we do have a couple of questions coming in in the chat. One, one is about the march on student loan payments and testing and how is that adults? Can you elaborate on the testing and other types of testing? A little bit.

Blake: Yeah. Those matching contributions are tested separately on the A.P. test. That's correct.

Michael: Right. Okay. So in addition to. Some of those new incentives to get employees into the plan. Another way to increase participation in the plan is to increase the coverage of eligible employees for the plan. So a couple of different provisions insecure related to that. So we take it away.

Blake: Yes. This is the one that for for the record keepers in the room, we're on the call. This is one of the ones that is going to be the biggest one of the biggest challenges to implement this long time, part time workers. And it requires us to. This one is mandatory. This is not optional. A plan sponsor does not get to choose whether to allow above whether they want to allow these long time part time workers to to come into the plan. So we had one rule in secure 11.0, and that rule will apply for one year only, and then we'll have a different rule begin applying in in year number two. So that that adds to even more complexity of this one. But this is regardless of your eligibility provision, if the employee worked. If the employee worked from four for three years of at least 500 hours. This is for the for for one year. The first rule that we have to deal with and secure to 1.0. If the employee works three years of working 500 hours, even if they otherwise hadn't met eligibility, they're required to be allowed to defer into the plan. The rule changes and secure 2.0 after the first year of application of this rule that then the rule is only dropped to two years of that participant working 500 hours or more. So for planes with immediate eligibility, this is no problem. They're coming in anyway. Where we're I think we're going to see issues on this one is probably two places. One, solo plans. We have a lot of owner only planes that have part time employees that have a thousand hour requirement. The employees part time. They never work 1000 hours. Well, if that policy works at least 500 hours over two or three years, they're going to come into the plan. And that's no longer a solo plan. So I think that's kind of know red flag number one to watch out for. Another place, obviously, is those plans with longer eligibility period, like a one year wait and 1000 hours. A number of people working part time don't meet that. But that do meet a 500 hour requirement. Those employees must now be allowed to defer into the plan, but it's deferral only. They are not required to be given, you know, matching or profit sharing or other types of employer contribution. It is just deferral. Any any comments or questions on that one. Michael.

Michael: From a comment perspective. I mean, I'll definitely I mean, this is this is one of the bigger ones that we're going to talk about today, just because, you know, the long time, part time that that there are so many businesses in this country that have, you know, part time employees that that, you know, they work a lot, but maybe not that that was an hour threshold or 20 hour threshold. They're not full time. And so this being mandatory, it's it's definitely going to increase the number of individuals that are participating plans. And like you said, it's it's, you know, something that has to be calculated and has to be tracked and adds additional complexity. And just really tracking to to all parties on the plan sponsor side and on the record to present.

Blake: So for 2024, the first rules can apply in 2024. The old secure 1.0 rule applies in 24. We're going to look back at how many hours did they work in 21, 22 and 23. Those are the three years we're going to be looking back on. So hours that we've been tracking for these last couple of years, they matter. So very important that we got the hours right in 2021 and 2022 and now in 2023, because that's going to determine this employee's eligibility potentially in 2024. Then in 2025, again, we go to two consecutive years. It doesn't have to be those prior two years. It's it's two. Any two consecutive years must be allowed to defer. So, again, we'll have even more people come in in 2025 that maybe missed the rule in 2024. And I see a question coming in. What about safe harbor plans? The same rule applies. This this rule is no different for traditional 41k plans or safe harbor for one K plans. But remember, this is deferral only and they don't have to get any safe harbor contributions. No matching, no profit sharing. They're not even counted in testing. These people are only coming in for deferral only. They are not coming in for for any other type of contributions, even like what we think of a mandatory kind of safe harbor contributions. The age 21 issue I see there is it is it is not a requirement. If they meet those those hours requirements, they will come into the plan under the long term part time rule.

Michael: Great, great questions keep coming in. And I love the questions from the audience. Okay, Maybe. Definitely not quite as larger an impact, but military spouses, there's something about individuals there as well.

Blake: Yeah, there's a new tax credit here, which is really the the the positive. So I know you're off. Y'all's first session you talked about last week, talked about the tax credits. So this is another tax credit that we get if you employee and make eligible more quickly a military spouse. So there is an additional tax credit of $200 per military spouse plus 100% of the employer contributions that are made to them, up to $300. But you do have to immediately make the employee spouse eligible within two months of hire, and they have to be eligible for the matching or profit sharing contributions and they have to be 100% vested. So, again, there's a there's a number of hurdles there. Again, as Michael mentioned, this is probably a smaller one. There's kind of a a fairly small universe of people affected here. But I love, you know, every little thing that gets more people into the plan, you know, encourages the business owners to provide more quicker opportunities for business owners, for for employees. Sorry to get into a plan because of lack of a, you know, a tax credit.

Michael: Absolutely. Yeah, because any questions on the military spouse tax credit eligibility, please put them in the chat. I've seen a couple of questions in there around, you know, we're talking a lot about some of these kind of individual provisions to get increased participation for plans that exist. There's a number of questions in there around incentives for employers to start your retirement plans. And Blake, I think you just mentioned it a little bit. We did have a webinar last month with a couple of folks that really keyed in on the incentives for employers to start new plans. And I would encourage everyone who hasn't seen that one to to take a look at that. We can definitely make sure that's available to you at a high level. Right. I think there's a number of tax credits similar nature to this military spouse eligibility, tax credit to the employer to do this activity to make these people eligible. There's a number of tax credits being made available to start new plans for the employer. I think maybe if we keep moving on to some of these individual provisions, I'm at the end. I think we should have some time and maybe we can dive into some of those some of those topics as well. Okay, so everyone. Everyone's in the plan now, right, Blake?

Blake: Everyone's in their.

Michael: Prime. Sometimes you got to get your money out. Sometimes there's an emergency. Sometimes there's some special reason. So a number of different provisions here to help individuals with that.

Blake: Yeah. This next group of slides is really all about the distribution provisions, and it's kind of an interesting way to think about the all these new distribution options we have. But that is what they're about. Distribution options, more distributions options are about giving employees encouragement to participate in the plan, because if they do run into a certain number of issues, they have a way of getting that money out. And certainly we hear today, you know, well, what if this happens to me? What if that happens to me and I can't get my money out unless I terminate employment? So, of course, we know hardships and loans and in-service distributions have been great features to encourage participation. What secured 2.0 did is added more options for ways for participants to get money out of the plan. Now, I think a caution here is I think this is an opportunity. And what it means for advisors is there's a lot of participant education that's going to be needed around this to one use. This is an opportunity to encourage more participation. But also we have to be careful that employees aren't then just taking more distributions, right? Because then that kind of gets us to the wrong outcome of what these provisions were intended for. And so I just want to kind of set that kind of overall perspective as we delve into these next slides that are really all focused around the new distribution options. So we start here with changes to the hardship distribution rules. We have alignment between the four of three V and the 41k roles.

Many of you probably didn't even know that there was a misalignment in those two rules, but we're following now the other 41k roles, and that begins in 2024. But really the big one is that employees can self-certify their hardship, their hardship reasons. So if you're familiar with plans today that have hardships, the documentation is is is a lot of work for a business owner, the trustee of the plan to gather all the documentation, gather the medical bills, gather the eviction notice, the the employee education bills, whatever it might be that they're having a hardship for to be able to document it. Well, now they can a plan sponsor could just rely on self-certification that the of the amount that is requested as a hardship distribution constitutes a hardship. You no longer have to get a copy of the medical bill, a copy of the eviction notice or things like that. This is all. This rule is also effective before 2024. So I think this will be one great for employees to make it a little bit easier. And two, I think it's also great for plan sponsors. You know, it's a little less burdensome now to have hardships in the plan. As far as the documentation goes, this one is optional. It's not mandatory. Plain sponsor can choose whether they want to to to change these rules.

Michael: You knew what my question was going to be. So thanks for getting on top of that. Whether it's mandatory or optional. And and if if a plan sponsor does choose to take advantage of this self-certification, like you mentioned, it definitely eases the burden, makes a little bit easier. We also need to consider the kind of controls and procedures that the plan sponsor had right before they had, you know, certain documentation required. And so from an operational perspective, they may have had a certain flow. Same on the recordkeeping side, writes about it. Some of that's definitely disturbing things.

Blake: For example, moving hardship distributions to more a fully online process from a distribution because we don't have to gather the documentation. They can just check a box and self-certify through an online process. Now makes that a much more simplified, streamlined experience for the participant. Yes, exactly what you've pointed out.

Michael: Excellent. Great.

Blake: Shall we go to the next slide? Okay. So again, a couple more distribution provisions here. Emergency expense distributions. So this is effective in 2024, but it allows one distribution per year, one penalty free withdrawal to be done once every three years. But they do have the option to repay it. And but I think we'll see that maybe about about everything on this slide that the the the benefit here is that if you were to take an emergency distribution or disaster distribution, any of these before age 59 and a half. You're subject to the 10% early withdrawal penalty. So all of these that you see on this page are about removing the 10% early withdrawal penalty for certain types of distributions, in this case emergency distributions, and this is for any, quote, unforeseeable or immediate financial need related to personal or family emergency expenses. That's pretty broad. So but but I think for those that we're trying to encourage living paycheck to paycheck to try to hit the deferral rate, to get the match, knowing that there are emergency distributions even more flexible, even more things are going to fall into unforeseeable and immediate financial needs for you or your family, then hardship, which is just prevent eviction from your home, purchase of principal residence, medical expenses, post-secondary education, funeral, those things. This is now very broad, just unforeseeable, immediate financial needs and and then not having to pay the 10% tax. So I think this is a great provision. I actually really like this.

One of all the things I think when I you know, if I'm in the shoes of an advisor, when I'm talking to, you know, in providing education to the rank and file employee, this is something that I would talk about, about, you know, there are more ways to get your money out. This is the most basic way. Now, if you have an unforeseen emergency and you need up to $1,000, you have access to get that out of the plan without paying a 10% early distribution penalty. The disaster relief rules. This is for federally declared disaster areas. Distributions that now up to $22,000 per disaster. No. 10% early withdrawal penalties. You can repay these. Also, you have the ability of spreading the income out over over three years. We also have increased loan limits and loan repayment periods as part of this disaster relief rules. So we're not going to have to wait on Congress every time there's a natural disaster to wait for that to be, you know, legislation to happen to, you know, to include the federally declared disaster distribution rules for that actual disaster. There's now kind of a blanket provision now a permanent rule that anything declared as a natural disaster area automatically applied. These rules automatically apply from a retirement planning perspective. Domestic abuses. Certainly, I think Congress was listening to, you know, events happening in our country with this one. But if you are if you have a domestic abuse situation, you can take a penalty free withdrawal. Again, not subject to the 10% early withdrawal penalty, up to the lesser of 10% or 50% of your vested balance and you can repay it.

This is effective in 2024 as well. But again, I think this is, you know, in today's society and, you know, issues around domestic abuse that we're dealing with, this is certainly a I think a an appropriate and responsible reaction to that. Were employee does have the opportunity to tap into dollars in a retirement plan if they need access to funds in order to be able to get out of a domestic abuse situation from a having some financial resources, having access to retirement planning resources, you know, dollars to do that. And then finally, the case of of terminal illness. And then we can see what questions have come in on this page. And there's a lot of material here, and this one is effective immediately. The other ones we talked about, 2024, this one's effective now. So if a physician certifies that an illness or condition is reasonably expected to result in death in 2018, sorry, 84 months or less, a participant can take a distribution not subject to the 10% early withdrawal penalty again. And what wouldn't meet the definition of a hardship for somebody who's 59 to have wouldn't have been on in service. But now while somebody is still working, would be able to take money out in the case of a terminal illness to be able to cover expenses related to that.

Michael: It's a great overview, Blake. A lot of a lot of new types of withdrawals for people to get money when they need it. And I think like you mentioned, that's, that's, that's really important just from a societal perspective as well as then for, you know, encouraging participants to participate, knowing that there are scenarios where they can give their money out when they need it. You know, a lot of.

Blake: These are optional, by the way. None of these are mandatory. These are optional provisions that can be put in.

Michael: Excellent. You know, a lot of what we've talked about today involves self-certification. So I do see there's a question here kind of around self-certification, specifically when it comes to hardships. Right. If you're an employer who chooses to go the self-certification route on hardships. What, if any, liability do you have when it comes to you simply taking that money out?

Blake: Yeah, it's it's a good question. The you know, I think I would say, well, we'll be waiting on more, you know, regulatory guidance on that. But I certainly the hope is that the there would not then be a risk to the plan sponsor that any, you know, risk would then be passed on to the participant you know, for that. But I think there's education that needs to be done around that from the advisor in the plan sponsors perspective to let's make sure our employees understand if they're taking a hardship and self certifying what that means and the, you know, potential liability associated with self certifying that distribution. I actually think going back to this was on a prior slide about this hardship, and I think this might be one that many plan sponsors say. I'd rather have the documentation and might not choose to do take the service certification approach and might choose to say, I'd like to continue getting the documentation to cover myself, at least maybe let this rule play out a little bit and see how the risk that this advisor brought up about, you know, could there be risk to me as an employer if I self if I accept this self-certification, then come to find out it's not a qualified hardship. So so for that reason, I do think we may see less interest in this provision from from plan sponsors. You know, quickly wanting to add that you know, option.

Michael: Yeah, I think I think that's a great point. An offshoot is the key word there, right? That what is optional, it's not mandatory. So employers can play it a wait and see approach and kind of get a sense of how things are going. And, you know, like many times when there's new legislation, I'm waiting on all the recommended guidance from, you know, the old IRS or all the various agents. So, yeah, absolutely.

Blake: So, I see we have two more questions that are basically asking the same thing. And well, what about all these optional provisions? What if somebody does want them? What can we amend our plan to do to add these provisions? The answer is no, you cannot. But the good news is you can operationally apply these new rules upon their appropriate application date without amending formally amending the plan for the language that needs to be in the document. One reason is we don't have the language yet that needs to go in. The plan document is not been released, but the secure 2.0 guidance did did make it clear that generally amendments for any of these changes are not going to be required until December 31st, 2025. So you can, for example, add these distribution options. You can you can do student loan payment matching without any amendment to your plan today. But we will need to amend the plan by December 31st, 2025, to then add that provision with a retroactive effective date back to when you operationally begin applying that rule to your plan. So if you make emergency expense withdrawals effective January one, 2024, we can make that change in your plan. You can begin processing distributions in 2024 by 12 3125. We would need to have language to amend the plan to allow for emergency expense withdrawals retroactively back to January one, 2024, in my example.

Michael: All right. Not seeing any more questions come in on these. So maybe let's move to the last kind of primary topic that we have for today's discussion. And that's kind of around you know, we talked a lot about getting participants into the plan. How do they get money out when they need it? These next two are really kind of around maybe participants who are inactive are maybe not as engaged in the plan. They terminate what happens to them that.

Blake: Yeah. So the first one is probably a rule that many of the advisors are familiar with the the current $5,000 force out rule that 5000 is being increased to 7000 to effective in 2024. So there'll be more people that we can force out of the plan. Generally, you know, plan sponsors are, you know, like this under $5,000 force out because they can clean up those small balances in by raising it up a couple of thousand dollars. That will be more people that will be able to force out of the plans. I expect this will be a popular provision and many of our plans will want to take advantage of this rule know, just to get some of those small people out, remove the liability of keeping those accounts on, getting an IRA created on behalf of those participants. And that kind of leads to the second option. The second item here, this is something that, you know, Congress, Department of Labor have been talking about for many, many years, and that is lost participant accounts and wanting to create a database, a national searchable online database for or for for retirement plan balances to try to help direct providers, direct participants, direct sponsors to be able to pull in those assets from those lost accounts into plans or certainly get them connected, get them reconnected to the participant where those lost accounts come from. So this is an initiative that the legislation passed to the Department of Labor that says create this database within two years of enactment. So we will obviously be watching to see what the Department of Labor does. There has have there are a number of initiatives even in the private marketplace that are working around solutions to this problem. So we again, will be we'll be waiting to see what the Department of Labor releases from a regulatory and kind of, you know, database perspective of what they're creating. But generally, I think we're all very supportive of this because it's about, you know, when we do have a lost account, we we all want to find ways to get that account reconnected back to the participant that, you know, made those deferrals, earn those employer contributions to get them either back into a retirement plan or back to the participant.

Michael: Absolutely agree with that one. Yeah. And, you know, I'm of course, that Ira is right. I mean, most employers, record keepers, custodians already have processes in place. This is a relatively straightforward change. So for that, for many reasons. But one of the reasons why, you know, there's going to probably be a lot of my take on this is it's relatively straightforward to make this change. So I agree with you on that point. Okay. At this point, I'd like to kind of open the floor to any questions that the group has related to security that we will certainly do our best to answer them. If if we want to move to the next slide, know just some additional resources that we have relative to secure to narrow. This presentation is available to you right now as part of the webinar in the resources section, and you'll get a copy of this with the email that goes out with the recording. But we do have a link to broader just secure 2.0 Resource Hub, which has a number of white papers, provision guides, links to the prior webinars that I've mentioned as well as opportunities to register for the upcoming webinars. Our next webinar that is upcoming is July 13th. I mean, that was really to be focused on financial planning considerations for advisors as it relates to secure. In the meantime, Blake and my contact information is on the screen. Please feel free to reach out to us with any questions or how we might be able to assist. And yeah, we'll see if there are any additional questions in the chat. I know we just have a couple of questions earlier kind of around incentive employers to start new plants, like I mentioned. But we've only got 5 minutes here, so I can't get into all the details. The prior webinar, they they had an hour to dive into it, but at a high level, you know, you know, there's a number of new tax credits for plans to start up or for employers to start up plans know secure 1.0. Add some tax credits for businesses with 51 to 100 employees. Security dot org has some new tax credits for 1 to 50 employee businesses. So kind of really expanding that tax credit range there a sense it's also created new plan types like the starter for one K for example. I'm really kind of like a401k in a box. Make it as simple and easy as possible to to get a plan up and running. So, you know, I think there's a number of great provisions there that I would send employers to start plans where you kind of using the add on topics.

Blake: No, I think you've summed it up nicely.

Michael: Critics. Okay.

Blake: Whole. To go back to a question here, Michael, that I'd saw from earlier, it's going back to the long term part time employees. But how are they going to be coded on the recordkeeping side? You know, is there some kind of special code that's going to be used for them? Right. Because they're kind of eligible, but they're kind of not. They didn't meet the eligibility provisions, but yet they're eligible for the plan to make deferrals. Yeah. So that's one thing we're working on. The recordkeeping side is, you know, a new classification for those. So, yes, you know, because there are things about how we're going to count them for testing and 5500 and all, that's going to be different. Yeah, I do expect that there'll be a different code for how we you know, you know, we're going to we're going to want to track those people as eligible only due to the long term part time rule, but for no other reason. Right. And so expect that some of those those kind of different coatings from different records, you know, from record keepers will you know, we will want to and need to track again from a testing and 5500 and other perspectives. Reasons that people are eligible for the plan. And if it's only because of long term part time, that will impact, you know, how we code and test that employee.

Michael: Great. That makes sense. We're not.

Blake: Seeing any more.

Michael: Questions in the chat. Blake Any any final words?

Blake: I think I would just go back to you know, I think what where we started and that is, you know, I think we do have a perfect storm of opportunity with prospecting, you know, probably more around the smaller start up plans than than than others. But I think it's a great it's a better opportunity than ever before. If you have not done plans are considered working in a smaller plan, you know, startup plans space, I think there's considerable opportunity, more opportunity than ever before for this to be a new or growing part of your business. Again, when you look at both secure 2.0 and look at, you know, what the states are doing from a mandate standpoint, I would just encourage, continue to learn more and participate in the opportunity.

Michael: Absolutely. Very well said, Blake. Blake, I want to thank you for taking the time today to share some of your expertise on these topics that are complicated by very exciting topics. So thank you for taking the time. And I want to thank everyone who attended the session today. Definitely appreciate you guys attending. Again, make sure to check out our past webinars as well as our future webinars on these topics. And if you have any additional questions, please feel free to reach out to either one of us or our free safety support at Broadridge dot com if you have any additional questions on this topic. So thanks again, everyone.