5 Ways the SECURE Act Impacts Small BusinessSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on January 24th, 2020
By Dixon Downey, January 24, 2020
The Setting Every Community Up for Retirement Enhancement Act (the SECURE Act) makes it more attractive for small business owners to offer employees a workplace retirement plan. The new law increases tax credits, reduces administrative costs and eliminates some of the risk.
If you’re a business owner or employee at a small firm, below are five changes you should know about. (If not, then I recommend reading previous installments on how the SECURE Act impacts nearly all investors both before and after retirement.)
1. Offering Retirement Plans Just Got Easier
Before the SECURE Act, employers were only allowed to offer multiple employer plans (MEPs) if they shared a common representational or economic interest, like a trade association. MEPs generally save money for participating businesses because they reduce administrative costs. However, the commonality requirement was restrictive.
Now, the SECURE Act allows small business owners to band together and offer an MEP even without commonalities. This new plan is called a Pooled Employer Plan (PEP). Also, the “one bad apple” rule was removed, which disqualified entire MEPs if a single employer wasn’t operating according to the MEP’s requirements.
2. Take Advantage of the Tax Credits
The new SECURE Act offers a additional tax credits by increasing the Retirement Plan Startup Costs Tax Credit and creating the Automatic Enrollment Tax Credit.
Retirement Plan Startup Costs Tax Credit
The previous Retirement Plans Startup Costs Tax Credit allows businesses to receive a tax credit of up to 50% of startup costs, up to $500 per year for 3 years. This means that before the SECURE Act, a business owner could claim up to $1,500 in tax credits for plan startups.
The SECURE Act increased the startup credit by increasing the limit to the greater of these 2 options:
- The lesser of A) $5,000 or B) $250 multiplied by the amount of non-highly compensated eligible plan employees of employers.
The credit still applies for 3 years, which means rather than having a shot at a maximum of $1,500 in tax credits, a business owner could potentially receive up $15,000. This could potentially offset startup expenses including administration, set up, and employee education.
Automatic Enrollment Tax Credit
The SECURE Act also created a new tax credit for employers who start 401(k) plans that include automatic enrollment. The credit equals up to $500 per year for 3 years, adding a possible additional $1,500 in tax credits.
3. Employers Are Not Liable for Employees’ Missed Payments
In time’s past, if a business offered a retirement plan for employees, and they missed their 401(k) payments, the business would be liable to come up with the money. Now, the SECURE Act has removed the liability from employers, granting a fiduciary safe harbor.
4. Part-Time Employees Now Qualify for Retirement Plans
Part-time workers who have worked a minimum of 500 hours for 3 consecutive years may now participate in workplace retirement plans. To put it in perspective, that’s about 10 hours per week each year. However, the business does not need to offer plan-matching or profit-sharing for these specific plans.
5. Employers Have More Time to File Employee Plans
The SECURE Act also grants business owners more time to file the paperwork to set up a plan. The December 31st cutoff has been extended to April 15th the following year.
Overall, the new SECURE Act proposes a number of benefits to American employees and business owners:
- Pooled Employer Plans allow for easy employer collaboration for better plan negotiations.
- Business owners can pocket up to an extra $16,500 in retirement tax credits for offering workplace retirement plans
- Employers are no longer liable for missed employee plan payments.
- Part-time employees can finally get retirement plans.
- And the deadline to complete the required paperwork has been extended by more than 4 months.
If you have any questions about how the SECURE Act may impact your business or your retirement, please do not hesitate to call us with any questions: (203) 790-4949.