Q4 2023
DC Pulse
Quarterly research, regulations, returns and trends
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MFS DC Takes
4Q2023
MFS DC Takes
Financial Obligations Can Get in the Way of Saving Adequately for Retirement
79% of plan sponsors say competing financial priorities have a moderate to major impact on the ability of participants to save for retirement1
What Participants Say2 
How Plan Sponsors Intend to Respond3 
Plan sponsors understand the impact competing financial priorities have on participants’ ability to save and want to help.
1 MFS 2023 Plan Sponsor Survey. Q: What impact do competing financial priorities (e.g., saving for emergencies, saving for education, student loan payments, living paycheck to paycheck) have on your participants' ability to save for retirement?
2 MFS 2023 Global Retirement Survey, US respondents. Q: Do you feel you have competing financial priorities that are preventing you from adequately saving for retirement? Percentages represent the sum of respondents who selected each option. *Percentage of respondents who did not select “I do not have competing financial priorities.”
3 MFS 2023 Plan Sponsor Survey. Dark Blue Bar Q: Thinking about SECURE 2.0, what changes do you expect to make to your primary DC plan? Please select all that apply. Teal Bar Q: Thinking about SECURE 2.0, if you were NOT limited by budget or resource constraints, what changes would you make to your primary DC plan? Please select all that apply
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DC Regulatory and Legislative Happenings
DC Regulatory and Legislative Happenings
Retirement Security Rule
DOL proposed the Retirement Security Rule in late 2023 to update the definition of what constitutes investment fiduciary advice . The proposed rule extends the definition of an “investment advice fiduciary” to both ERISA plans and IRAs. It now covers one-time investment advice (e.g., rollovers) and replaces the five-part test with a three-part standard. The proposed rule was published in the Federal Register as a proposed rule on November 3, 2023, with a 60-day comment period through January 2, 2024. DOL held public hearings in December and the effective date would be 60 days after publication of a final rule in the Federal Register.
Proposed Retirement Legislation
Members of the House of Representatives and Senate issued a draft for technical corrections to SECURE 2.0 . Importantly, the bill would correct the accidental removal of catch-up contributions, starting in 2024. Additionally, two pieces of bipartisan legislation have been introduced/ reintroduced that focus on (1) creating a federal retirement plan for private-sector workers who do not have access to employer-sponsored plans and (2) lowering the participation age to age 18 for ERISAcovered plans.
Bring Back the Cash (Balance)
One large employer made headlines by announcing it was replacing its 401(k) match with a cash balance plan starting on January 1, 2024. The previous match will be replaced by a 5% of pay contribution to the Retirement Benefit Account (RBA); employees will still be able to contribute to the 401(k) plan. Employees will also receive a one-time pay increase of 1%. Pay credits in the RBA will accumulate interest credits at 6% for the first three years, then tied to Treasury rates in the years that follow, with a floor of 3% for the first seven years. Coverage of this change has ignited discussions around a possible resurrection of defined benefit plans.
IRS 2024 Contribution Limits
Retirement plan contribution limits effective January 1, 2024, include:
401(k) Contributions
- Increased to $23,000
- Catch-up: stayed the same at $7,500
IRA Contributions
- Roth: increased to $7,000
- Traditional: increased to $7,000
- Catch-up: stayed the same at $1,000
Health savings accounts (HSAs) contribution limits effective January 1, 2024, include
- Increased to $4,150 for an individual
- Increased to $8,300 per family
- Catch-up: stayed the same at $1,000
Sources:
https://www.dol.gov/sites/dolgov/files/ebsa/temporary-postings/retirement-security-rule-definition-of-an-investment-advice-fiduciary.pdf
https://waysandmeans.house.gov/secure-2-0-act-technical-corrections-discussion-draft-released/
https://www.ignites.com/c/4289784/555154/life_federal_retirement_plan_push?referrer_module=emailMorningNews&module_order=7&code=Y-W5OaGRtRm5aVUJ0Wm5NdVkyOXRMQ0F4TmpJNE9UTXpOQ3dnTVRVek1qazVNVEl3TVE9PQ.
https://401kspecialistmag.com/bipartisan-bill-backs-401k-plans-for-teen-workers/
https://www.reuters.com/markets/wealth/next-big-thing-retirement-benefits-might-be-oldest-traditional-pension-2023-12-07/ WASHINGTON The Internal Revenue Service today announced cost of living adjustments applicable to dollar limitations for pen (irs.gov)
https://www.irs.gov/pub/irs-drop/rp-23-23.pdf
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SECURE 2.0 ONE YEAR LATER
SECURE 2.0 One Year Later
What to look for in 2024
In 2023, industry stakeholders leaned in to better understand the implications of various provisions, especially those effective immediately, including a change in the required minimum distribution age from 72 to 73 (which will change to 75 in 2033).
EFFECTIVE IN 2024 Mandatory Cash-Out Limits: These include an increase in the mandatory cash-out limit of $7,000 (increased from $5,000), allowing employers to transfer former employees’ accounts below that threshold to an IRA without consent. Part-Time Eligibility: Also effective in 2024, new rules will allow employees who complete 500 hours of service in three consecutive years to contribute to 401(k) plans Catch-Up Contributions: Participants with compensation exceeding $145,000 will only be allowed to make catch-up contributions on a Roth after-tax basis. In response to industry concerns, the IRS delayed the effective date of this provision by two years, allowing sponsors to begin administering this provision in 2024 if desired, but permitted them to delay implementation until January 1, 2026, if more time is needed. Student Loans: Widely discussed, but optional, provisions related to emergency savings and student loans are also set to go into effect in 2024, although the IRS has not yet issued guidance. The new rules allow student loan payments to be treated as elective employee contributions for the purpose of matching contributions. Emergency Savings: SECURE 2.0 also includes two approaches with respect to emergency savings: (1) Allowing participants to take a $1,000 distribution from their account once every three years without being subject to a distribution tax, or (2) Allowing withdrawals up to $2,500 from a separate emergency savings account subject to numerous conditions. POTENTIAL IMPACT This change should help ease the burden on sponsors. This change broadens eligibility for participants. The delayed effective date was in response to industry concerns about administrative complexity. This provides more time for recordkeepers and sponsors. This change allows more employees to take advantage of their employer matching contributions.. This change is meant to persuade more employees to save for retirement, understanding they have other ways to deal with an emergency event. Source: Summary of Key Provisions of SECURE 2.0 https://www.mfs.com/en-us/investment-professional/insights/retirement-insights/summary-key-provisions-secure-act-2022.html
DC Market Data
Establishing Emergency Savings Vehicles
Without cash on hand, some individuals take on credit card debt, and in some cases, take loans from their retirement plans.
Sponsors can encourage emergency savings and now facilitate it by establishing emergency savings accounts under SECURE 2.0.1 Survey fielded in October 2022. Staff of the Federal Reserve Board wrote the survey questions in consultation with other Federal Reserve System staff, outside academics, and professional survey experts. The final sample used in the report included more than 11,000 respondents. Data as of October 2023.
2 Spending spike is defined as a spike of at least 25% above the previous 12 months’ median spending that cannot be funded by the household’s income alone.
3 How Financial Factors Outside of a 401(k) Plan Can Impact Retirement Readiness https://www.ebri.org/content/summary/how-financial-factors-outside-of-a-401(k)-plan-can-impact-retirement-readiness.
4Q2023
MFS DC Takes
Financial Obligations Can Get in the Way of Saving Adequately for Retirement
79% of plan sponsors say competing financial priorities have a moderate to major impact on the ability of participants to save for retirement1
| What Participants Say2 |
| How Plan Sponsors Intend to Respond3 |
Plan sponsors understand the impact competing financial priorities have on participants’ ability to save and want to help.
1 MFS 2023 Plan Sponsor Survey. Q: What impact do competing financial priorities (e.g., saving for emergencies, saving for education, student loan payments, living paycheck to paycheck) have on your participants' ability to save for retirement?
2 MFS 2023 Global Retirement Survey, US respondents. Q: Do you feel you have competing financial priorities that are preventing you from adequately saving for retirement? Percentages represent the sum of respondents who selected each option. *Percentage of respondents who did not select “I do not have competing financial priorities.”
3 MFS 2023 Plan Sponsor Survey. Dark Blue Bar Q: Thinking about SECURE 2.0, what changes do you expect to make to your primary DC plan? Please select all that apply. Teal Bar Q: Thinking about SECURE 2.0, if you were NOT limited by budget or resource constraints, what changes would you make to your primary DC plan? Please select all that apply
DC Regulatory and Legislative Happenings
Retirement Security Rule
DOL proposed the Retirement Security Rule in late 2023 to update the definition of what constitutes investment fiduciary advice . The proposed rule extends the definition of an “investment advice fiduciary” to both ERISA plans and IRAs. It now covers one-time investment advice (e.g., rollovers) and replaces the five-part test with a three-part standard. The proposed rule was published in the Federal Register as a proposed rule on November 3, 2023, with a 60-day comment period through January 2, 2024. DOL held public hearings in December and the effective date would be 60 days after publication of a final rule in the Federal Register.
Proposed Retirement Legislation
Members of the House of Representatives and Senate issued a draft for technical corrections to SECURE 2.0 . Importantly, the bill would correct the accidental removal of catch-up contributions, starting in 2024. Additionally, two pieces of bipartisan legislation have been introduced/ reintroduced that focus on (1) creating a federal retirement plan for private-sector workers who do not have access to employer-sponsored plans and (2) lowering the participation age to age 18 for ERISAcovered plans.
Bring Back the Cash (Balance)
One large employer made headlines by announcing it was replacing its 401(k) match with a cash balance plan starting on January 1, 2024. The previous match will be replaced by a 5% of pay contribution to the Retirement Benefit Account (RBA); employees will still be able to contribute to the 401(k) plan. Employees will also receive a one-time pay increase of 1%. Pay credits in the RBA will accumulate interest credits at 6% for the first three years, then tied to Treasury rates in the years that follow, with a floor of 3% for the first seven years. Coverage of this change has ignited discussions around a possible resurrection of defined benefit plans.
IRS 2024 Contribution Limits
Retirement plan contribution limits effective January 1, 2024, include:
401(k) Contributions
- Increased to $23,000
- Catch-up: stayed the same at $7,500
IRA Contributions
- Roth: increased to $7,000
- Traditional: increased to $7,000
- Catch-up: stayed the same at $1,000
Health savings accounts (HSAs) contribution limits effective January 1, 2024, include
- Increased to $4,150 for an individual
- Increased to $8,300 per family
- Catch-up: stayed the same at $1,000
Sources:
https://www.dol.gov/sites/dolgov/files/ebsa/temporary-postings/retirement-security-rule-definition-of-an-investment-advice-fiduciary.pdf
https://waysandmeans.house.gov/secure-2-0-act-technical-corrections-discussion-draft-released/
https://www.ignites.com/c/4289784/555154/life_federal_retirement_plan_push?referrer_module=emailMorningNews&module_order=7&code=Y-W5OaGRtRm5aVUJ0Wm5NdVkyOXRMQ0F4TmpJNE9UTXpOQ3dnTVRVek1qazVNVEl3TVE9PQ.
https://401kspecialistmag.com/bipartisan-bill-backs-401k-plans-for-teen-workers/
https://www.reuters.com/markets/wealth/next-big-thing-retirement-benefits-might-be-oldest-traditional-pension-2023-12-07/ WASHINGTON The Internal Revenue Service today announced cost of living adjustments applicable to dollar limitations for pen (irs.gov)
https://www.irs.gov/pub/irs-drop/rp-23-23.pdf
SECURE 2.0 One Year Later
What to look for in 2024
In 2023, industry stakeholders leaned in to better understand the implications of various provisions, especially those effective immediately, including a change in the required minimum distribution age from 72 to 73 (which will change to 75 in 2033).
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| EFFECTIVE IN 2024 | Mandatory Cash-Out Limits: These include an increase in the mandatory cash-out limit of $7,000 (increased from $5,000), allowing employers to transfer former employees’ accounts below that threshold to an IRA without consent. | Part-Time Eligibility: Also effective in 2024, new rules will allow employees who complete 500 hours of service in three consecutive years to contribute to 401(k) plans | Catch-Up Contributions: Participants with compensation exceeding $145,000 will only be allowed to make catch-up contributions on a Roth after-tax basis. In response to industry concerns, the IRS delayed the effective date of this provision by two years, allowing sponsors to begin administering this provision in 2024 if desired, but permitted them to delay implementation until January 1, 2026, if more time is needed. | Student Loans: Widely discussed, but optional, provisions related to emergency savings and student loans are also set to go into effect in 2024, although the IRS has not yet issued guidance. The new rules allow student loan payments to be treated as elective employee contributions for the purpose of matching contributions. | Emergency Savings: SECURE 2.0 also includes two approaches with respect to emergency savings: (1) Allowing participants to take a $1,000 distribution from their account once every three years without being subject to a distribution tax, or (2) Allowing withdrawals up to $2,500 from a separate emergency savings account subject to numerous conditions. |
| POTENTIAL IMPACT | This change should help ease the burden on sponsors. | This change broadens eligibility for participants. | The delayed effective date was in response to industry concerns about administrative complexity. This provides more time for recordkeepers and sponsors. | This change allows more employees to take advantage of their employer matching contributions.. | This change is meant to persuade more employees to save for retirement, understanding they have other ways to deal with an emergency event. |
Source: Summary of Key Provisions of SECURE 2.0 https://www.mfs.com/en-us/investment-professional/insights/retirement-insights/summary-key-provisions-secure-act-2022.html
DC Market Data
Establishing Emergency Savings Vehicles
Without cash on hand, some individuals take on credit card debt, and in some cases, take loans from their retirement plans.
Sponsors can encourage emergency savings and now facilitate it by establishing emergency savings accounts under SECURE 2.0.
1 Survey fielded in October 2022. Staff of the Federal Reserve Board wrote the survey questions in consultation with other Federal Reserve System staff, outside academics, and professional survey experts. The final sample used in the report included more than 11,000 respondents. Data as of October 2023.
2 Spending spike is defined as a spike of at least 25% above the previous 12 months’ median spending that cannot be funded by the household’s income alone.
3 How Financial Factors Outside of a 401(k) Plan Can Impact Retirement Readiness https://www.ebri.org/content/summary/how-financial-factors-outside-of-a-401(k)-plan-can-impact-retirement-readiness.
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