SECURE 2.0 has the potential to help millions of Americans access retirement plans next year, but the complexity of the legislation also introduces unintended consequences that will be challenging for many retirement plans. In fact, only one-third of retirement plans report they are able and ready to implement the changes necessary to meet the Roth catch-up requirements that go into effect on January 1, 2024.
The Roth Catch-up 2.0 Challenge
While the change to make catch-up contributions for earners making $145,000 or more on a Roth basis rather than pretax was initially overlooked during the bill’s drafting, it is a major revenue driver that will fund other incentives in the SECURE 2.0 bill. 200 employers and retirement plans wrote a letter to Congress requesting a two-year implementation timeframe rather than six months. The letter said, “We have been struck by the overwhelming input from the retirement community that this particular task simply cannot be done in time by a vast number of plans.” However, Congress seems unlikely to grant the extension.
Making the Impossible Possible
Enterprise Iron, a leading retirement industry consulting firm, has created the business logic needed for retirement plans to correctly calculate which plan participants will be impacted by the new Roth rules and what the specific pre- and post-tax mix should be for each participant. However, as an external model, the challenge remains how to change legacy retirement plan systems to incorporate the new logic.
A revolutionary partnership with Coherent Spark enables plans to meet the SECURE 2.0 requirements without making any changes to their legacy administrative systems. Coherent can convert the Enterprise Iron business logic to code, compile it in the cloud, and connect it as an API to existing systems in minutes. The output from the Coherent model can be seamlessly integrated with a plan’s current administrative system to effectively and efficiently solve the Roth conversion requirements.
“Many of our clients were convinced that the SECURE 2.0 Roth conversion requirements would be impossible to meet on such an aggressive timeline. With traditional development cycles, making and testing the type of code changes required would easily take 12-18 months,” says Enterprise Iron’s Director of Compliance Services, Lauren Leneis. “We are extremely excited to partner with Coherent on a solution that makes it possible to meet the requirements in weeks! By using the external business logic that we created and connecting that output to a plan’s administrative system with the Coherent Spark platform, plans can meet the requirements without making any code changes to their systems.”
Meeting Additional SECURE 2.0 Requirements
Beyond the Roth conversion dilemma, Coherent Spark can dramatically accelerate the automation of new model changes and daily manual processes for retirement plans. Business logic can be managed in Spark (without programming skills) and connected to downstream apps and portals. This enables retirement plans to accelerate product development and automate manual processes that will enable them to successfully win more SECURE 2.0 business in multiple ways, including:
- 401K pricing: By running pricing models in the cloud and connecting the results to field wholesalers in real-time, Spark can accelerate a manual pricing process that traditionally takes 10-12 days to minutes.
- Plan onboarding and fund replacement: Similar to pricing, traditionally slow, paper-based processes can be automated in the cloud and connected to downstream apps and portals.
- Lifetime income payment: Spark business logic can be used to calculate lifetime income payments in real-time and connected to a front-end website where customers can calculate their potential payment rates with different scenario inputs.
- Digital experiences: Similar to lifetime income payment, Coherent can build business logic for any type of web calculator that can be hosted behind the scenes on the Spark platform and available for users to run calculations on the plan website.
Beyond meeting required regulations, these solutions will give retirement plans a competitive advantage with real-time product innovation. Connected models drive improved customer experiences and enable plans to capitalize on new market opportunities.
Ready to learn more about SECURE 2.0 Roth solutions?
The retirement industry is facing huge challenges with little time to make changes and even less flexibility from Congress. While some have argued that some congressional demands are “impossible”, Enterprise Iron and Coherent Spark are making the impossible possible. Together, solutions for SECURE 2.0 requirements can be created in days and implemented within weeks.
