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.
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.
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