SECURE Act 2.0: Enhancing Retirement Plans with Vital Domestic Violence Relief Provisions

In the United States, the grim reality of domestic violence looms over countless lives. The National Coalition Against Domestic Violence (NCADV) reports that approximately 20 individuals per minute are physically abused by an intimate partner. This startling statistic translates to over 10 million men and women each year. These figures are not just numbers; they represent a deep-seated issue that calls for immediate and meaningful action, particularly in terms of providing tangible aid to those affected. 

The introduction of SECURE Act 2.0 brings with it a beacon of hope as it includes a compassionate amendment enabling retirement plans to offer distributions without penalties for those grappling with domestic violence. This provision could serve as a crucial financial lifeline in times of dire need. 

What sets this measure apart in SECURE Act 2.0 is its approach to withdrawals. Typically, hardship and early withdrawals come with a 10% penalty if taken before the age of 59 ½. However, this penalty is waived for distributions made to victims of domestic violence, who also have the option to repay the withdrawn amount within three years. This not only provides immediate financial relief but also helps preserve the long-term financial stability of the individuals, ensuring they can rebuild their lives once they are in a safer environment. 

While the importance of this provision is evident, it is essential to approach its adoption with a degree of caution. The urgency to immediately incorporate such measures into retirement plans may not always be necessary or advisable. 

Assessing the Need: While Plan Sponsors should be made aware of the provision, it is wise to wait until a participant specifically requests the distribution before making a decision to include it. Adding a distribution provision is relatively straightforward, but once it is part of the plan, it can be challenging to remove. Certain distributions are considered protected benefits, and even when they are not, restricting or removing them later can have negative repercussions. 

Caution Against Misuse: Domestic abuse provisions, in particular, require careful consideration. Domestic abuse is defined as physical, psychological, sexual, emotional, or economic abuse, including efforts to control, isolate, humiliate, or intimidate the victim, or to undermine the victim’s ability to reason independently, including by means of abuse of the victim’s child or another family member living in the household. Sometimes it is easy to determine if there was physical abuse, but not so much if the abuse is psychological, emotional, or economic. If the plan sponsor requires verification, it could put those administering the plan in an uneasy position, therefore, it may be best to allow for self-certification. On the other hand, self-certification could potentially lead to misuse of the provision. This misuse is not inherently problematic from a regulatory perspective, but it may raise concerns for plan sponsors if they suspect the provision is being exploited. 

For retirement plans considering this important addition, the implementation process involves several key steps: 

1. Plan Amendment: Modify the official plan documents to list distributions for domestic violence as an approved category for withdrawals. Per SECURE 2.0 Act, the amendment deadline for required and optional provisions under is the end of the first plan year beginning on or after January 1, 2025. However, as of now, many plan documents do not yet have access to the language needed for an interim amendment. Therefore, it would be advisable to consult with your plan document provider to request this type of distribution be added to your plan, with the amendment being pursued when language is available. 
2. Verification Process: Develop a discreet and sensitive method for verifying claims of domestic violence, potentially involving restraining orders, police reports, or testimonies from shelters or healthcare providers.
3. Communication: It is crucial to communicate the availability of this provision effectively to all participants. Ensure individuals are aware of the support available to them without necessitating public disclosure of their personal circumstances.
4. Assistance and Privacy: Maintain the utmost respect for the privacy and security of the individuals, adhering strictly to confidentiality protocols to protect them from further harm. 

As plan sponsors, integrating this provision goes beyond merely enhancing a benefits package. It is a profound declaration of support for the welfare and dignity of all participants. However, it is equally important to balance this compassion with practicality, ensuring provisions like these are added thoughtfully and in response to genuine need. By adopting a careful yet compassionate approach within retirement planning, we not only uphold a moral obligation but also cultivate a culture of care and empathy within our organizations.