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SECURE Act 2.0: What This Pending Legislation Means for Small Business Retirement Plans

Retirement plan legislation currently being considered in Congress could provide much-needed support to employers in their efforts to help more employees save for retirement.   

The bipartisan Securing a Strong Retirement Act, or SECURE Act 2.0, passed the House Ways and Means Committee by a unanimous vote last month, and it’s now before the House for review. The SECURE Act 2.0 builds on the landmark Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was signed into law in December 2019 to help improve retirement savings opportunities for American workers. 

It’s no secret that the majority of Americans are woefully under-saved for retirement. The Covid-19 pandemic has exacerbated America’s retirement savings crisis as millions of workers lost jobs, had their hours cut or were forced to take mandatory furloughs. SECURE 2.0 aims to simplify pathways to retirement savings and make it easier for employers to engage workers in proactively planning for retirement earlier in their careers. It also serves to clarify and simplify existing retirement plan rules.

Whether you offer a retirement plan for your employees, or you’re considering starting up a new plan, this new legislation will likely impact you if and when it’s signed into law. Here’s what you need to know about SECURE 2.0. 

New Provisions and Small Business Incentives

The bill may change as it moves through the legislative process in the House and Senate. Key provisions included in SECURE 2.0 would:*

  • Expand automatic enrollment and auto-escalation (stepped deferrals) in workplace retirement plans, helping to increase participation and contribution rates for eligible employees
  • Raise catch-up contribution limits for people ages 62-64, making it easier for those who have not saved enough to boost their savings as they close in on retirement
  • Increasing tax incentives for small businesses to set up workplace retirement plans, which may encourage more employers to offer this key benefit
  • Allow employers to match an employee’s student loan payments with a contribution to their retirement plan account
  • Raise the required minimum distribution (RMD) age for retirement plans from 72 to 75 over 10 years
  • Pave the way for more widespread use of lifetime income products like annuities in retirement plans

*At the time of writing

Importantly, SECURE 2.0 delivers powerful incentives for small businesses to offer a retirement plan benefit for employees. They include:

  • A doubling of the tax credit for setting up a retirement plan: For small businesses with 50 or fewer employees, the new legislation would increase the existing tax credit from 50% to 100% of plan start-up expenses, capped at $5,000 per employer (this limit is unchanged from the original SECURE Act). The tax credit would apply for each of the first three plan years, for a total of $15,000. 
  • Broader eligibility requirements for the start-up tax credit: Under SECURE 2.0, employers would receive start-up credits based on the year they join existing plans, instead of only offering the credit for the plan’s first three years.
  • Employer matching contribution credits: The legislation also makes available a new tax credit for employers. The credit would be a percentage of the amount the employer contributes on employees’ behalf, capped at $1,000 per employee. The full tax credit would be limited to employers with 50 or fewer employees, and would be phased out for employers with 51-100 employees as follows:
    • 100% in the first and second years
    • 75% in the third year
    • 50% in the fourth year
    • 25% in the fifth year
  • Maintaining the auto-enrollment tax credit: SECURE Act 2.0 would keep in place the $500 per year tax credit for electing auto-enrollment. The tax credit would apply for the first three years of election.

SECURE 2.0 will go to the House, then the Senate, for a vote. It is not clear when the House will vote on the bill. We will continue following SECURE 2.0 as it moves through Congress, as the shifting legislative landscape can be challenging to navigate on your own.

Multiple Employer Plan (MEP) Advantages

While the coming retirement policy enhancements will certainly provide advantages when it comes to establishing and managing a retirement plan and maximizing employees’ savings opportunities, they also come with challenges for employers, such as: 

  • setting up a plan and managing related costs, 
  • fulfilling fiduciary responsibilities and preventing liabilities,
  • managing dedicated (and often limited) plan resources, and 
  • lack of focus on doing what you do best — running and growing your company.

Rather than establish a retirement plan on your own, it may be worth considering joining a multiple employer plan (MEP). A plan like the national 401(k) MEP from WTIA offers enhanced benefits such as group buying power, which delivers lower fees and reduced costs for participating employers. In addition, the MEP absorbs much of the fiduciary and legal risk — we handle the plan administration for you, including discrimination testing, Form 5500 and audits.

In addition, the MEP is designed for tech, by tech. WTIA provides plan design flexibility to fit the unique needs of your company and employees, including a variety of employer contribution formulas and access to a range of accredited investment options with multiple fund providers.

As an employer, you likely want flexibility when it comes to offering an affordable and competitive retirement plan benefit to help you recruit and retain the best talent. Yet, it may also be important to you to rely on an experienced provider to do the heavy lifting when it comes to managing administrative and fiduciary responsibilities for the plan. SECURE 2.0 has the potential to enable you to provide an opportunity for your employees to save for the future. The MEP may be one solution to consider as you weigh the options.

To learn more about the WTIA 401(k) MEP, visit https://www.washingtontechnology.org/services/401k/ or contact Angie Hopkinson at ahopkinson@washingtontechnology.org.

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