Retirement plans are one of the top benefits you can provide to your employees for their future and as a retention tool. Through the SECURE (Setting Every Community Up for Retirement Enhancement) Act, Congress just added new incentives and tax credits for businesses to offer a retirement plan to their employees, which will reduce the administrative costs.
Among the provisions to encourage employers to become retirement plan sponsors, the SECURE Act will:
• Encourage small-business owners to adopt automatic enrollment by providing a further $500 tax credit for three years for plans that add auto-enrollment of new hires.
• Simplify rules and notice requirements related to qualified non-elective contributions in safe harbor 401(k) plans.
• Extend the period of time for companies to adopt new plans beyond the end of the year to the due date for filing the company tax return, giving employers additional time to cover their employees with a profit-sharing contribution.
• Offer a consolidated Form 5500 for certain defined-contribution plans with a common plan administrator to reduce administrative costs, but also increase penalties for failure to file retirement plan returns such as Forms 5500, required notifications of changes and required withholding notices.
Thanks to the SECURE Act, your business may be eligible for up to $16,500 in tax credits over the next three years — simply for offering employees a benefit they both want and need!
• Employers that adopt automatic enrollment can also qualify for an additional $500 credit per year for three years!
Additional details of interest to employers –
The SECURE Act will expand access to workplace retirement plans for millions more full- and part-time workers, particularly small business employees. Starting in 2021, the new retirement law guarantees 401(k) plan eligibility for employees who have worked at least 500 hours per year for at least three consecutive years.
The legislation also expands opportunities for workers to obtain guaranteed lifetime income products, and will require that plan participants receive an illustration of how much monthly income their retirement savings will provide, which can help them plan to increase their retirement savings.
The SECURE Act also enhances certain retirement plan features such as automatic enrollment and auto-escalation, sanctioning the ability of employers to enroll employees automatically into a retirement plan at a 6% rate of salary contribution instead of 3%. The provision also includes a safe harbor for employers to increase employee contributions to the retirement plan up to a maximum of 15% of an employee’s annual pay.
The tax credits that are given to small employers to start a plan and to offer automatic enrollment is a great development.
• Second, a new $500 tax credit is created for a small business’s start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. The credit is available for three years and is in addition to the existing credit described above. The credit is also available to small businesses that convert an existing retirement plan to an auto-enrollment plan.
• Third, starting in 2021, the new law allows completely unrelated employers to participate in a multiple-employer plan and have a “pooled plan provider” administer it, which typically results in lower administrative costs.
CONTACT US: Retirement plans are not a one size fits all issue. Our financial professionals are qualified to discuss the tax implications of the SECURE Act for you and for your small business, and help you start a retirement plan to take advantage of the tax credits now available. A well-designed retirement plan is easier and cheaper to implement and administer than you might think. It can make your workforce stronger by attracting and retaining motivated, productive workers with the financial benefits they value. Interested in learning more? Please contact Cory Lyon, Financial Advisor at TFG Financial, at 561-209-1120 or clyon@tfgfa.com.
TFG Financial Advisors, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.
