How Employers Can Help Their Employees Retire

Last week, we published a blog explaining how the SECURE Act affects individuals. You can click here to read that blog.  On the other side is what the SECURE Act does to encourage employers to offer retirement savings plans like a 401(k) for their employees to invest in as savings.

The SECURE Act

As a recap from last week, at the end of 2019 the SECURE Tax Law was passed.  It contains significant provisions aimed at increasing access to tax-advantaged retirement accounts and preventing older Americans from outliving their assets.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was signed into law by President Donald Trump on December 20, 2019 as part of the Further Consolidated Appropriations Act, 2020 and it is the first real major piece of retirement legislation since the Pension Protection Act of 2006.

How the SECURE act affects employers/small business owners:

Additional Credits

• The legislation increases the business credit limitation for small employer retirement plan start-up costs. This credit would apply to small employers with up to 100 employees over a 3-year period beginning after December 31, 2019 and applies to SEP, SIMPLE, 401(k), and profit sharing types of plans. The legislation increases the credit from the original maximum of $500 to up to $5,000 in certain circumstances. The credit applies for up to three years.
• In addition to the business credit above, the legislation has created a new tax credit for small employer automatic enrollment to encourage greater participation in qualified retirement plans. This credit will be available up to $500 per year and is available for three years. The credit will also be available to employers who convert an existing plan to automatic enrollment.

Increased Participation Opportunities

• Starting in 2021, the legislation will allow long-term, part-time workers to participate in 401(k) plans. They must have worked either 1,000 hours in a year or at least 500 hours per year for three consecutive years of service.
• The legislation will allow an opportunity to set-up and join a qualified plan after the close of the year. For plans adopted after December 31, 2019 a business can adopt, and employees can contribute to, a qualified retirement plan up until they file their return (including extensions) and the plan will be legally effective for the prior year.  For example, a business that sets up a plan in February 2021 (regular filing date of March 15^th) has a legal effective date of 2020. This additional time will provide flexibility for employers and the opportunity for employees to make contributions for the earlier year and begin to accumulate retirement savings.

Easier Maintenance of Plans for Employers

• The SECURE Act contains a provision that makes it easier for small business owners to set up “safe harbor” plans that are less expensive and easier to administer. The legislation provides fiduciary safe harbor to 401(k) plan sponsors in the selection of lifetime income providers, which would include annuities among offerings to plan participants. Fiduciaries are protected from liability for any losses that may result to the participant or beneficiary due to an insurer’s inability in the future to satisfy its financial obligations. 
• The legislation provides a new compliance regime for a multiple employer plan (MEP) maintained by a pooled plan provider. The provision will allow unrelated businesses to participate jointly in a retirement plan with the intention to make it easier and more economical for smaller employers to offer retirement plans. 

Preparing for a Retirement Plan

Starting a retirement plan for your organization has many different considerations you need to be aware of before adopting one. Now that there are benefits like tax credits, it’s something every small business owner needs to at least know about.  If you would like additional information regarding retirement plans and your company, please contact your Aviso advisor.