New consumer protections in the SECURE 2.0 Act
In December, President Biden signed omnibus spending legislation into law that contained a set of consumer provisions known as the SECURE 2.0 Act of 2022. This legislation, which I’ve written about before, introduced important changes to many aspects of retirement, such as when and how to take required distributions from retirement accounts.
In this column, I’d like to discuss the law’s consumer provisions that will help many participants in retirement plans. For a fuller discussion of the law’s provisions, visit pensionrights.org, the website of the Pension Right Center (PRC), a nonprofit consumer organization committed to protecting and promoting the retirement security of American workers, retirees and their families.
Here are a few of the law’s provisions:
Creation of a retirement savings lost-and-found database.
PRC, affiliated pension counseling projects, and financial planners hear from hundreds of individuals every year who cannot find their pension plan because of company moves, change of company names and corporate restructures. Trying to identify the pension plans sometimes take weeks or months, and in many cases the plans cannot be found.
Under SECURE 2.0, the Department of Labor has two years to create and maintain an online searchable website that you can use to find “lost plans.” This will allow you to apply to receive the benefits you are entitled to. The Department of Labor will gather information from plans with the relevant information, so you will be able to locate the administrator associated with these lost plans.
The development of this database has been a priority of PRC for many years, and it should allow you to obtain earned benefits even years after you stopped working for the companies whose plans had been unavailable.
Recoupment actions. Currently, companies that have accidentally overpaid retirees are able to demand repayment from retirees — many times with interest — even though the mistake was made by the company, not the employee. This is known as recoupment. This practice creates hardship for many retirees.
Fortunately, SECURE 2.0 has provisions to assist retirees. Under these provisions, a plan is not required to recoup overpayments. If a plan chooses to proceed with recoupment, there are some consumer protections. There is a flat prohibition if the plan does not discover the miscalculation within three years of the first overpayment. Also prohibited is a reduction of future benefits by more than 10%. These provisions were the result of efforts by PRC, with attorneys representing retirees and those representing plan sponsors.
Delivery of individual benefit statements and reports to Congress regarding effectiveness of disclosures.
In 2020, the Department of Labor weakened ERISA disclosure protection by allowing plans to simply provide workers with the “availability” of individual benefit statements and directing them to a website. Employees had to request these individual statements, and many employees did not follow through. Under the new provisions in SECURE 2.0, plans are required to provide these benefit statements once a year on paper for 401(k) style plans and every three years for traditional style pensions, unless the worker specifically elects electronic disclosure of these statements. This provision protects your right to obtain paper statements more easily.
Disclosure of consequences of electing lump-sum payment.
Under prior regulations, individuals had a limited period to make a decision regarding accepting a lump-sum payment as opposed to a recurring pension. Unfortunately, many employees had to make an important decision with limited information. Under the new provisions included in SECURE 2.0, the plan administrator is required to provide plan participants with critical information that will allow them to compare the relative benefits, to explain how the lump sum was calculated, and to explain how selection of the lump sum could lead to a loss of federal protections. These new provisions will allow you to make a more informed decision.
There are other provisions in SECURE 2.0 that can benefit you, such as new saving options. Go to pensionrights.org and review these provisions as summarized by Karen Friedman, executive director of PRC. You will find the information comprehensive and easy to understand.