SECURE 2.0: Implementation Trends for Optional Provisions 

The SECURE 2.0 Act, which was officially signed into law in December 2022, introduces a myriad of optional plan provisions that will more than likely have a significant impact on retirement plan design and administration. Sponsors initially focused on the required provisions as they awaited clarification from related agencies and regulators on both the required and optional provisions. Now, many plan sponsors have turned their attention to how optional provisions can support their benefit strategy and employees’ needs.  

The optional provisions present opportunities to potentially enhance engagement and provide financial flexibility for employees. However, the decision-making process requires careful consideration of which optional provisions align with the organization’s strategic goals, the unique needs of their workforce, cost to implement, and the capabilities of their recordkeepers.

Ultimately, the decisions made in response to SECURE 2.0 extend beyond the retirement benefits landscape to reflect the organization’s approach to supporting employees’ financial wellbeing. This paper will explore some of the more widely discussed optional provisions of SECURE 2.0 and provide commentary as to which optional provisions are most likely to be pursued based on surveys of plan sponsors and recordkeepers.

Implementation trends

Mercer surveyed¹ seven DC recordkeepers representing more than 110,000 plans to ask which optional provisions of SECURE 2.0 plan sponsors had already implemented or were planning to implement. We asked recordkeepers about 14 optional SECURE 2.0 provisions², which we have aggregated into a meta-analysis and can be bucketed into one of four broad categories:

• Contributions & benefits
• Distributions
• Lifetime income
• Eligibility & participation

From a macro perspective, there are a handful of provisions that plan sponsors have not indicated an interest in and recordkeepers do not have data for. In some cases, the provision is not set to take place until a future date (e.g., qualified long-term care distributions start in 2026) or the recordkeeper’s platform does not currently support the underlying driver of the provision (e.g., annuities or qualifying longevity annuity contracts). Some recordkeepers also indicated that they did not intend to build out functionality to support certain provisions (e.g., pension-linked emergency savings accounts). The lack of recordkeeper support for some provisions, like pension-linked emergency savings accounts (PLESAs), may be due to early signs of little interest from plan sponsors. During Mercer’s Defined Contribution Plan Sponsor Quarterly Update 4Q 2024 (Quarterly Update), attendees indicated that they were not interested in implementing the PLESA-related provision (68%) or were unfamiliar with the provision altogether (14%).³

Across the responses received from recordkeepers, there were six provisions for which there was no interest or data provided related to plan sponsor implementation.⁴

Likely due to its impact on plan administration and ease of the administrative update, around 75% of plans have implemented or are in the process of implementing an increase in their involuntary cash-out limit. The remaining six provisions for which there were responses vary in implementation, ranging from near 0% (option for Roth employer match and nonelective contributions) just over 9% (penalty-free withdrawals for terminal illness).

It may make sense that the option for Roth employer match and nonelective contributions has near 0% implementation due to the recent issuance of IRS guidance, notable coordination between various vendors and internal stakeholders (e.g. payroll, tax, etc.), and other considerations (e.g. participant education and communications, etc.). However, according to a poll conducted during Mercer’s Quarterly Update, more than 45% of respondents indicated that they were likely to implement or are considering implementing this provision.³  This disparity between what recordkeepers are experiencing in terms of implementation and what plan sponsors are indicating highlights just how complex this provision is and the reality that more time is required for recordkeepers to update their technology and systems to meet sponsor demand. We anticipate there will be an increase in recordkeepers’ reported adoption of this provision in the coming years, as build-out and vendor/stakeholder coordination occur.

Another notable observation is that the different penalty-free withdrawal provisions do not have similar rates of implementation. With these provisions all focusing on providing participants with more ways to access their retirement savings to meet near-term financial needs, one might have expected implementation rates to be closer to one another. Two possible theories explain this. Firstly, this likely illustrates the differences in benefit strategy and offerings available among employers. For example, some employers may offer other benefits that address long-term care or terminal illness needs. Second, there may be concerns among plan sponsors about retirement account leakage and therefore only some provisions are being offered at the outset.

As we examine the responses by plan size, we see greater adoption by larger plans in provisions such as matching student loan payments, Roth employer match and nonelective contributions, penalty-free withdrawals for emergency expenses and domestic abuse. For the remaining provisions where larger plans are not leading in implementation, they are generally aligned with the rate for smaller plans.

What was most surprising is that smaller plans have a significantly lower implementation rate for the provision that allows them to rely on employee certification for hardship distributions. For a provision that should alleviate some administrative burden for likely smaller human resource / benefits teams, one would expect a higher rate of smaller plans having implemented the provision or in the process of implementing it.

While there was limited data available by industry to conduct a thorough analysis, there appeared to be consistent implementation rates across provisions, except for government plans, which lagged significantly with respect to implementing increases in involuntary cash-out limits and relying on employee certification for hardship distributions.

The implementation rates of the penalty-free withdrawal provisions related to emergency withdrawals for emergency expenses and domestic abuse suggest higher adoption as the plan size increases. We expect these rates to continue to climb over time, as another set of polls from Mercer’s Quarterly Update saw more than 60% of respondents indicate that they were likely to implement these provisions or were considering implementing them in the future.³

Like the option for Roth employer match and nonelective contributions, the provision which would allow matching of student loan payments has an exceptionally low implementation rate. As seen in Exhibit 2, while larger plans are 4-5x as likely to have implemented or intend to implement the provision in the future, the complexity surrounding the technology build and the need for coordination between plan sponsors and recordkeepers is likely causing the low implementation rates. Additionally, the prevalence of student loan debt is likely to vary considerably by industry, let alone company. This low rate of implementation is consistent with the responses from a poll conducted in Mercer’s Quarterly Update where more than 70% of respondents answered that they were not likely to implement the provision. We will continue to monitor plan sponsor implementation rates of this provision and gauge how much effort recordkeepers may be committing to supporting this given a potentially low utilization; we will also monitor plan sponsors already offering other student loan debt and tuition assistance-related benefits.

Conclusion

Plan sponsors must balance the desire to remain competitive with their peers against the practicalities of what is feasible and beneficial for their organization.

As plan sponsors navigate the complexities introduced by SECURE 2.0, the prospects for implementation rates of its optional provisions will largely depend on a combination of participant needs, organizational goals, cost-benefit analysis, and administrative capabilities. The flexibility offered by these provisions, such as the increased voluntary cash-out limit, Roth employer match, and nonelective contributions, presents a unique opportunity for sponsors to potentially enhance their retirement plans and better align them with the evolving expectations of the workforce.

Please see the appendix below for more information on SECURE 2.0’s optional provisions.

Have you considered how SECURE 2.0’s optional provisions could potentially benefit your organization’s retirement plan? Contact us to discuss tailored strategies that align with your long-term goals.

_{¹ The information provided herein summarizes results from a broad survey Mercer conducted across some of the largest US DC plan recordkeepers in February and March 2025. Additional plan sponsor responses were sourced during a live webinar conducted by Mercer on November 13, 2024.  It is important to note that individuals surveyed did not receive any form of compensation for participating in this survey. Additionally, Mercer has not identified any material conflicts of interest that would affect the responses. If you have any further inquiries or require additional information, please do not hesitate to contact us. For a comprehensive list of questions & responses pertaining to these survey results, please contact Mercer US DC Marketing. It is important to recognize that survey results are subject to inherent limitations and uncertainties. The survey results may not capture all relevant factors or market conditions. These results should not be construed as personalized investment advice.}

_{² A detailed list of the provisions surveyed, along with a brief description, is available in the appendix.}

_{³ Hockenmaier, K. (2024, November 13). Defined Contribution Plan Sponsor Quarterly Update Webinar 4Q 2024. Mercer (US), Inc., n = 228. Link to webinar replay.}

_{⁴ The six provisions with no data include: pension-linked emergency savings accounts, expanded savers credit match, qualified long-term care distributions, more qualifying longevity annuity contract flexibility, elimination of RMD penalty on partial annuities, and small financial incentives for participation.}