SECURE Act for Small Business

When 2020 began, business owners found significant changes in the way they may run their qualified retirement plans, thanks to the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Whether or not you sponsor a plan, here is some of what you may want to know about the new law:

MEPs Expanded

Small employers who previously were ineligible to join multi-employer plans (MEPs) may now do so if they meet some relaxed requirements. Previously, participation in these multi-employer pools meant your company needed to share some common traits with others in the pool. This is no longer required, opening access to pools that might cost less for small businesses than stand-alone plans. Compliance was also relaxed for MEP providers.

New Income Options

The SECURE Act improves the safe harbor provision of plan providers who offer annuities in their qualified plans. The safe harbor makes it easier to satisfy fiduciary requirements when choosing the life insurance company selling the annuity.

Employers, however, are now required to file an annual disclosure notifying employees of their projected retirement income, calculated as if the plan balance were invested in an annuity. Additionally, part-time employees who worked at least 500 hours each year for three straight years are newly eligible to contribute.

Tax Credits

If your company doesn’t sponsor a qualified plan yet, the new law offers a bigger startup tax credit of up to $5,000 for establishing one, subject to rules and restrictions. You also have until your tax filing deadline, plus extensions, to start a plan. That’s moved from December 31.

And if you already sponsor a 401(k), SIMPLE IRA or other qualified plan, you may be eligible to take a $500 credit a year for three years of auto-enrolling new employees. Another new safe harbor involves the automatic enrollment escalation cap, which rises from 10% to 15% of pay— a boon for late savers.

Finally, the SECURE Act reduces some of the red tape and compliance issues that prevented small businesses from adopting qualified retirement plans in the past. So, if you don’t yet offer a retirement plan, you might want to examine one in light of these changes.