What Advisors Really Think of Secure 2.0 Act: Survey

The passage of the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act in late 2022 represents a relative bright spot in our increasingly polarized political landscape.

As a follow-up to the Secure Act, signed into law at the end of 2019, the new law has a variety of provisions designed to improve retirement outcomes for Americans. While many of the provisions are specifically targeted toward defined contribution plans, there are a variety of implications for financial advisors, even those who don’t work directly with plan sponsors, given the potential implications on their clients.

In this article, I’ll review the results of a recent Prudential survey conducted online among 245 U.S.-based financial professionals on Jan. 30, 2023, focusing on three questions that provide some context about how financial advisors are feeling about the legislation.

To summarize: Financial advisors are cautiously optimistic about the long-term benefits, but are very divided on whether we’ll see a meaningful increase in the availability of annuities in defined contribution plans.

Positive Expectations for Retirement Outcomes

When asked how much they expected Secure 2.0 to benefit clients’ progress to their retirement goals, advisors were optimistic:

In other words, advisors expect the legislation to improve retirement outcomes. This isn’t necessarily a surprise given the increases in things like 401(k) catch-up contributions, delayed required minimum distributions, and increased coverage (i.e., enrollment) in company-sponsored defined contribution plans.

Positive Expected Impact on Financial Advisor Practices

Not only do financial advisors expect Secure 2.0 to result in better retirement outcomes for clients, they also expect the legislation to have a moderate to large positive impact on their practices over the next 12 months, as demonstrated below.

Financial advisors surveyed were overwhelmingly positive about the potential impact, with 62% being moderately or largely positive, while only 5% where moderately or largely negative.  Financial advisors clearly perceive the Secure 2.0 Act as a way to engage with clients and help them create better outcomes and demonstrate the value of financial planning

Mixed Perspective on the Growth of Annuities in 401(k) Plans

There are a number of provisions in the Secure 2.0 Act targeted toward 401(k) plans. While the original Secure Act was more focused on annuities, e.g., introducing the fiduciary safe harbor, there are updates in the 2.0 version, such as increasing the cap for qualified longevity annuity contracts (QLACs) as well as combining payouts from an annuity and the 401(k) plan for the purpose of calculating RMDs.

Financial advisors have a mixed perspective on the extent Secure 2.0 will drive higher availability and utilization of annuities in U.S. retirement plans in the near future. The exhibit below contains responses to a question asking whether advisors agree that Secure 2.0 will drive 20% of U.S. retirement plan assets into annuities in the next 12 months.

We can see that the distribution is very mixed, with approximately the same number of responses agreeing and disagreeing with the perspective of growth around annuities.

Perhaps what’s most interesting about these responses is that there is no relationship between the perceived impact on annuity utilization in DC plans and whether the financial advisor uses annuities. In other words, it’s not like the responses agreeing and disagreeing with the expectations are being biased by whether the financial advisor uses annuities; the responses are all over the map.

Conclusions

Financial advisors have somewhat mixed perspectives on the Secure 2.0 Act but generally see opportunity for clients as well as themselves. Therefore, familiarizing yourself with provisions of the Secure 2.0 Act is likely a smart move!

David Blanchett is managing director and head of retirement research for PGIM DC solutions.