SECURE 2.0 Act – Section 318. Performance Benchmarks for Asset Allocation Funds
Existing DOL participant disclosure regulations require that each investment alternative’s historical performance is compared to an appropriate broad-based securities market index.
However, the rule does not adequately address increasingly popular investments like Target Date Funds (TDFs) that include a mix of asset classes.
While the DOL’s 2013 publication, Target Date Retirement Funds – Tips for ERISA Plan Fiduciaries, provided guidance on many of the important and unique considerations for TDF evaluation and selection, it did not change the rules for benchmark comparison disclosures to participants.
The SECURE 2.0 Act of 2022 (SECURE 2.0) requires the DOL to modify existing regulations so that an investment using a mix of asset classes can be benchmarked against a blend of broad-based securities market indices, provided that:
- The index blend reasonably matches the fund’s asset allocation over time,
- The index blend is reset at least once a year and
- The underlying indices are appropriate for the investment’s component asset classes and otherwise meet the rule’s conditions for index benchmarks.
This change in the disclosure rule allows better comparisons and aids participant decision-making. These changes are permissive for plan administrators and are not mandatory. The DOL is directed to update the regulations no later than two years after the enactment of this Act.
If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].
This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.
About SECURE 2.0
SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.
This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.
The full text of SECURE 2.0, including provisions that affect pension and cash balance plans, may be found on pages 2,046-2,404 of the omnibus Consolidated Appropriations Act of 2023.
About Schneider Downs Retirement Solutions
Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
