SECURE Act Impacts to Small Businesses
UNDERSTANDING KEY HIGHLIGHTS OF THIS LAW AND HOW IT COULD IMPACT YOU AND YOUR EMPLOYEE OFFERING
The SECURE Act was signed into law at the end of 2019 and is meant to encourage more people to save for the long term by increasing their options. SECURE stands for “Setting Every Community Up for Retirement Enhancement” and expands the options and incentives available to small businesses, in addition to the changes benefitting individuals. These provisions are intended to encourage small businesses to adopt and utilize employer-sponsored retirement plans for their employees. Offering an appealing benefits package can help recruit and retain valuable employees while providing them with tools to take control of their financial wellness.
HERE ARE SOME OF THE MAJOR CHANGES FOR SMALL BUSINESSES
The introduction of pooled employer plans makes it easier for small businesses to join together and offer defined contribution retirement plans.
- The Act introduces pooled employer plans (PEPs)—a type of multiple employer plan (MEP) that allows small, unconnected employers to join together in the same overall 401(k) plan as opposed to creating separate plans for each business.
- Provisions remove the “bad apple rule,” which previously disqualified an entire pooled plan if one employer in the group was not functioning in accordance with the MEP’s plan documents.
- A pooled plan provider (PPP) will need to be selected and be responsible for performing all administrative duties and ensuring compliance with regulations from entities such as ERISA and the IRS. The PPP will act in a fiduciary capacity and as administrator.
A wider array of annuity options are now available within your business’s retirement plan.
- Plan sponsors can now offer variable annuities in their 401(k) plans. Previously only fixed annuities were available.
- The Act helps limit employer liability when offering annuities in a plan. The employer is still required to conduct fiduciary due diligence when selecting an insurance company and annuity options; however, the employer does not have to select the lowest-cost option.
Small businesses can receive new tax credits for starting a plan or modifying their current plan.
- The SECURE Act increases the maximum potential tax credit for starting a new retirement plan to $5,000 per year for up to three consecutive years. This credit would apply to small employers with up to 100 employees.
- A new tax credit of up to $500 per year, for up to three years, is available to employers that start retirement plans with automatic enrollment. The credit is also available to employers that convert an existing plan to include automatic enrollment.
- The legislation extends the current adoption deadline (December 31) to the due date for employer’s tax return (including extensions).
Long-term, part-time employees can now be included in employer-sponsored plans.
- Previously, part-time employees working less than 1,000 hours per year were generally excluded from a company’s 401(k) plan. The new law now allows plan access to employees working 500 hours a year for three consecutive years.