3 Ways the SECURE Act Makes 401(k)s More Affordable for Small Employers

3 Ways the SECURE Act Makes 401(k)s More Affordable for Small Employers

If you’ve been thinking of offering employees a 401(k), SEP IRA or SIMPLE IRA to help your recruitment and retention efforts, the SECURE Act may be just the incentive you need to adopt a plan.

Passed in 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act is designed to encourage more employers to sponsor retirement plans, especially those with 100 or less employees. That’s because those least likely to offer a plan are small employers.

For these companies, the biggest barrier to starting a plan is the financial cost. To encourage these employers to adopt a plan and help their workers save for retirement, the SECURE Act offers three important advantages starting with the 2020 tax year.

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1. Start-up Tax Credit: Before the SECURE Act, small employers could take a tax credit of up to $500 a year for three years for qualified start-up costs, which include TPA fees and employee education. The SECURE Act increases that amount. Now, small businesses can take a federal tax credit, for up to 50% of eligible out-of-pocket expenses, of between $500 and $5,000 a year for the first three years of the plan based on the following formula: $250 x the number of eligible non-highly compensated employees up to a max of $5,000.

2. Automatic Enrollment Tax Credit: To drive employee participation and savings, the SECURE Act created a new tax credit of $500 a year for employers who add an auto-enrollment feature to a new plan, or even to an existing plan.

3. Plan Adoption Extension: Previously, companies had to adopt a retirement plan by the end of their tax year. Now, to give employers more time to determine if they can afford plan administration costs or contributions, the SECURE Act extends this timeframe to the business’ tax-filing deadline.

Joe Vasko is the Director, Retirement Administration at The Hilb Group of New England.

Vasko has more than 25 years of experience in the design and administration of all types of employer-sponsored retirement savings plans, including 401(k), 403(b), profit sharing and defined benefit. His consultative approach to plan evaluation, selection, and design ensures a program that’s customized to each client’s specific needs.