SECURE Act Gives Tax Credits for Employers’ Retirement Plans

A new law was recently passed that makes critical changes to employer-provided retirement plans, including tax breaks. These new rules should be on your radar if your small business has a retirement package for employees or if you are considering adding those benefits to your employee retirement plans. The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law on December 20, 2019, as part of a larger spending bill. JLK Rosenberger summarizes the key concepts for small businesses below. 

1. Employers and businesses that are unconnected will be able to join forces to create one retirement plan for multiple companies. The new rules, starting in 2021, will make it easier to create and manage multiple employer plan (MEP). An MEP is a single plan operated by two or more unrelated employers. Previously, some barriers made it difficult to set up and maintain those plans. The new law increases opportunities for small employers to join together to create more purchasing power that will allow employers to obtain better retirement plans for their employees. Benefits experienced through MEPs may include better investment results while allowing for less expensive and more efficient management services.
2. Bigger tax credit for small business retirement plan startup costs. If you are planning to set up a retirement plan, new rules will increase the tax credit for retirement plan startup costs. The purpose is to make it more affordable for small businesses to set up retirement plans. Starting in 2020, the tax credit increased by changing the calculation of the flat dollar amount limit to the greater of $500, or the lesser of: a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan, or $5,000.
3. New small employer with automatic plan enrollment tax credit. Understandably, when employers automatically enroll employees in retirement plans, there is increased participation and higher retirement savings. There’s also a new tax credit of up to $500 per year to employers for new 401(k) plans and SIMPLE IRA plans that require automatic enrollment. The hope is that this tax credit will help defray set up costs and encourage enrollment. This credit is in addition to an existing plan startup credit described earlier and is available for the next three years. The credit is also available to employers who change a current plan into a plan with automatic enrollment.

There are many other changes to the retirement plan provisions in the SECURE Act. These include changes to the auto-enrollment safe harbor cap, nondiscrimination rules, new rules that allow certain part-timers to participate in 401(k) plans, increased penalties for failing to file retirement plan returns, and more. Be sure to contact us at JLK Rosenberger to make the most of your retirement planning opportunities. For additional information, call us at 949-860-9893 or click here to contact us. We look forward to speaking with you soon.