The SECURE Act, signed into law at the end of 2019, takes steps to address the retirement crisis and provides a host of benefits to business owners looking to sponsor retirement plans for their employees. These benefits include tax incentives, widened access for employers as well as greater inclusion for part-time employees. 

Let’s take a look at the SECURE Act, its impact on employers and what might be coming next with the SECURE Act 2.0. 

What is the SECURE Act? 

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in December 2019. This act became law as of January 1st,  2020. 

What Does the SECURE Act Change?

The act changed a variety of retirement account rules. These changes included adjustments to who is eligible to contribute to retirement accounts as well as when withdrawals are required. Additionally, the new legislation adds an exception to the early withdrawal penalty.

The SECURE Act and Retirement Account Changes

According to US News, the act includes changes such as:

• “The required minimum distribution age increases to 72, up from 70 1/2.
• The age limit for IRA contributions has been removed.
• Inherited retirement account distributions must be taken within 10 years.
• New parents can take penalty-free withdrawals.
• Long-term part-time employees may now be eligible for 401(k) plans.”

How Does the SECURE Act Affect Business Owners?

The main benefits to take advantage of under this new law include: 

• Tax credits for establishing new retirement plans
•  Tax credits for establishing automatic enrollment plans 
• The creation of Multiple Employer Plans (MEP) and Pooled Employer Plans (PEP)
• Inclusion of Long-term, Part-Time Employees

Let’s take a look at each of these changes in more detail.

Increased Tax Credit For Businesses Starting a Plan

The SECURE Act proposes raising the current Retirement Plans Startup Costs Tax Credit. 

Additional Tax Credit for Automatic Enrollment

The SECURE Act develops a new tax credit of up to $500 per year to employers to defray startup costs for new 401(k) and SIMPLE IRA plans that include automatic enrollment. Why? This additional tax credit will help to encourage business owners to add an automatic enrollment feature to their plan. 

Multiple Employer Plans (MEP) and Pooled Employer Plans (PEP)

One of the biggest benefits is that multiple, unrelated employers can participate in the same retirement plans through MEPs and PEPs, beginning January 1, 2021. 

Through PEPs, companies can benefit from their pooled buying power to lower administrative and investment costs. Additionally, companies can transfer some fiduciary liabilities and administrative burdens to third-party pooled plan providers.

This change can provide employers with more options and access to new systems. 

Inclusion of Long-term, Part-Time Employees

As a result of the tight labor market, many employers may be having difficulty attracting and retaining top talent. One impactful and often successful option of mitigating these challenges is for employers to offer 401(k) to their team. 

The SECURE Act supports these efforts through providing flexibility on the hours per year requirement for long-term, part-time employees to qualify for a workplace retirement plan. 

In the past, a part-time employee had to maintain at least 1,000 hours per year to qualify for the retirement plan. Now, with the SECURE Act, employees must complete at least 500 hours every year over a three-year period to qualify. This change can be helpful to seasonal employees or those who take long absences, such as parental leave. 

How Can Business Owners Take Advantage of the SECURE Act For Their Business?

While the overall goal of the SECURE Act is to simplify the process and provide benefits to employers, the process can still become complicated quickly. 

Because of this, the US Chamber recommends business owners should consider enlisting additional help in implementing SECURE benefits and “create retirement plans in an efficient, legal way.”  

The SECURE Act 2.0 May Be Coming

A House-approved SECURE Act 2.0 is on the horizon in the United States. This act includes over 50 provisions designed to address and remove some of the barriers faced by employees trying to save for retirement. The SECURE Act 2.0 will likely be finalized in the late fall or winter of 2022, along with some other provisions introduced by the Senate.

According to Forbes Advisor, we should know if the act will pass by the end of the year. 

Here’s what to be ready for if the SECURE Act 2.0 Bill passes.

Increased Credit for Small Employers

Does your business have less than 50 employees? If you start an employer pension plan your business may be eligible for a 3-year start-up credit that is now up to 100% (50% in the 2019 SECURE Act) for your start-up costs. 

There will also be credit for 5 years of up to 1,000 dollars per employee participating in your pension plan. If the law goes through these increases in credit will be effective for tax years beginning after 2022.

Multiple Employer 403b Plans

If your company has a 403b plan, or you’re planning on starting one, it can now be established and maintained as a Pooled Employer Provider (PEP) or Multiple Employer Plan (MEP). PEPs and MEPs provide great value because they limit employer compliance responsibilities and fiduciary liability by outsourcing your plan to a provider. 

Employing Military Spouses

Do you employ any military spouses? The new act will create a nonrefundable income tax credit for small employers that employ military spouses and allow them to take part in your defined contribution plan. The credit will be $250 per employee, plus up to $250 for contributions made by the employer, and applies for up to 3 years. 

Expanded Automatic Enrollment 

Your 401k and 403b plans will now have to enroll all eligible employees at a 3% contribution rate that will tick up 1% every year and cap out at 10%. Your employees can choose to opt-out though.

You will be exempt if your company is less than 3 years old or employs less than 10 people.

Student Loan Payments

Your contributions made on behalf of your employees for qualified student loan payments will now count as matching contributions. 

This means you’ll be able to subtract any student loan payments your employees make from their salaries and treat them as an elective contribution.

Financial Incentives

Unlike the 2019 SECURE Act, the 2022 bill, if passed, will allow you to offer your employees small financial incentives to join your company’s retirement plan. This could be anything from gift cards to merchandise, as long as they are “of little importance”. 

Optional Roth Contributions

If you have a 401k or 403b plan at your company, you’ll be able to give your employees the option to elect that their matching contributions become Roth contributions, which means that contributions use after-tax dollars.

What To Do Now

The bill expects to pass because of overwhelming bipartisan support. If you’ve been considering any type of pension plan for your business, there’s never been a better time to do it. You’ll have access to huge tax benefits and will be giving your employees more options than ever. The SECURE Act was a good incentive to start a plan, the 2.0 version will make it a no-brainer.

Interested in Setting Up a 401(k) Plan for Your Business?

Setting up a 401k retirement savings plan for your business is a great way to save money on taxes and provide your employees with a valuable benefit. 

Consider contacting our team for assistance. At RWM, we provide a clear path to secure retirement for employers and employees of successful businesses. Learn more about us and why we do what we do, here. 
Then, check out our blog for all the retirement savings jargon you should know, here.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.