|Previous Law||SECURE Act|
|Deadline to adopt new plan: December 31st||Deadline to adopt new plan: tax filing deadline|
|No tax credit for including automatic enrollment||Tax credit up to $500 per year for three years for plans including automatic enrollment|
|Auto-enrollment max contribution: 10%||Auto-enrollment max contribution: 15%|
|Tax credit for 50% of necessary eligible startup costs up to a maximum of $500 for three years||Tax credit for $500Or,The lesser of:$250 times the number of non-highly compensated employees$5,000|
|Regulatory violation of one company could jeopardize MEP eligibility||Regulatory violation of one company does not jeopardize MEP eligibility|
|Part-time employee eligibility: 1000 hours over 12-month time period||Part-time employee eligibility: 1000 hours over 12-month time period or 500 hours for 3 consecutive years|
Our recent post on the SECURE Act focused on the way retirement plans and 529 plans will be affected beginning in 2020. In this article, the focus will be how the SECURE Act will affect small businesses and employers. Given the emphasis on retirement enhancement within the Act, there are many advantages for small business employers or employees to begin, or accelerate, saving for retirement.
It has been common for small businesses to be hesitant before starting a retirement plan. Now, employers beginning retirement plans will have an extended deadline to adopt a new plan. The new deadline for an employer to adopt a plan is their tax filing deadline, compared to the previous December 31st deadline. Another area that enhances retirement planning is auto-enrollment. When an employer includes auto-enrollment in their new plan adoption, they can take advantage of a $500 tax credit. Additionally, the auto-enrollment max contribution percentage increased from 10% to 15%. This allows employers to prompt employees that would otherwise neglect contributing into a retirement plan.
Another major advantage is the increased tax credit for retirement plan startup costs. Businesses with 100 or fewer employees may be able to receive a tax credit up to $5,000 per year for three years. This tax credit was previously capped at $500 per year, meaning businesses could enjoy increased savings of up to $13,500 over a three-year timespan.
Small businesses have the ability to create a pooled plan where multiple companies can form one retirement plan. Changes to multiple employer plans will create an easier way for small businesses to join together. Previously, companies that created multiple employer plans had to be comprised of related employers. Now, unrelated companies will be able to group together when forming these plans. In the past, any single employer who had a regulatory violation would jeopardize the eligibility of the entire pooled plan. Going forward, even if one employer has a regulatory violation, the plan can keep its multiple employer plan status. This change should bring comfort to employers debating whether to join these types of plans.
Part-time employees now have additional opportunity to participate in retirement plans. They will be eligible to participate if they work 500 hours for 3 consecutive years.
Marshall Financial Group can assist you in gaining a better understanding of the SECURE Act and how it may affect your situation. Our professionals can help determine if there are any opportunities you could be taking advantage of. Click here to contact an advisor.