Retirement Plan Review: From Participation Rates to SECURE 2.0

It's no secret that when you conduct a retirement plan review, you have a chance to understand the data and trends, which can help your plan be efficient and compliant. To set your plan up for success and see if changes are needed, it's important to make the most of this analysis. Here are some key components to focus on.

Your plan's current participation rate

One piece of the plan health puzzle is your current 401(k)'s participation rate as it is a key signal of the retirement plan's effectiveness. When paying attention to these metrics, you may gain insights into the level of employee engagement and identify opportunities, especially when you consider the possibilities of implementing automatic features, while making other plan design changes and thinking about how employees engage with their 401(k)s. Aim for 90% or greater.

Deferral rate statistics

Equally significant are your retirement plan data trends, especially deferral rates, which are crucial for optimizing the financial well-being of plan participants. Understanding deferral rate data helps you know if employees are making informed decisions about their contributions. It also reveals opportunities for more effective education and communication. Much like participation rates, deferral rates can highlight opportunities for plan design modifications. Aim for 10% or greater.

Effective asset allocation and potential for re-enrollment

Effective asset allocation is another key statistic that plays a pivotal role in the performance of retirement portfolios. By evaluating the asset allocations across participating employees, you can identify opportunities to align strategies with investment goals, risk tolerance profiles, and market conditions. Analyzing the asset allocation data can reveal opportunities like re-enrollment, which can be a valuable endeavor long-term. Re-enrollment allows employees to reselect their investment options or be enrolled in a Qualified Default Investment Alternative (QDIA). This process offers participating employees a fresh chance to look at how they are allocated and consider a more suitable investment strategy.

Auto-enrollment and auto-escalation

Auto-enrollment can be a great streamlining tool to help savers achieve retirement readiness and increase participation in your plan, especially if encouraging employees to take positive actions has traditionally been a challenge. Aside from other benefits to the employee population, auto-enrollment can be an effective tool to improve recruitment and retention, unlock tax credits, and help with compliance testing. Auto-escalation is an effective feature that incrementally raises plan contributions over time (e.g., increasing by 1% annually up to a maximum of 15% annual deferral). This approach not only has the potential to lower payroll taxes but also, akin to auto-enrollment, facilitates employee retention by overcoming the usual roadblocks of getting employees to take positive action.

SECURE 2.0 2026 updates

SECURE 2.0 legislation continues to introduce significant changes, with a major update taking effect on January 1, 2026. Your retirement plan review is a good time to discuss these regulatory implications and consider necessary implementation steps.

• Mandatory Roth Catch-Up Contributions: Beginning in 2026, Section 603 of the SECURE 2.0 Act requires that catch-up contributions made by participants whose prior-year FICA wages exceeded $150,000 must be made on a Roth (after-tax) basis.¹

• Administrative Prerequisite: If your plan currently does not offer a Roth contribution feature, you must add one to allow high-earners to continue making catch-up contributions.

• "Super" Catch-Up Opportunity: 2025 and 2026 also spotlight the enhanced catch-up limits for participants aged 60 through 63, allowing for higher deferrals than the standard catch-up amount.

The retirement plan review is your time

Reviewing your retirement plan data empowers you to make informed decisions and adjustments for the coming year, thereby fostering confidence in your plan's health. By evaluating current metrics and seizing opportunities, you can enhance efficiency, boost employee participation and satisfaction, and help future-proof your offering.

Sources:

1 Internal Revenue Bulletin: 2025-40 | Internal Revenue Service. www.irs.gov/irb/2025-40_IRB.

The Alliance Team

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info@alliancerps.com

All information provided is for educational purposes only and should not be construed as a solicitation or offer to sell securities or provide investment, tax, or legal advice. The information provided has been been compiled from third party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way, whatsoever.. Always consult with a qualified financial advisor or accountant before making any investment decisions. All investments involve risk (the amount of which may vary significantly), and investment recommendations will not always be profitable. Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Advisor Public Disclosure website, https://adviserinfo.sec.gov/firm/summary/123807.