By Kristie Guadiano – Divisional Director, Polaris Greystone Financial Group

On December 20, 2019 the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law. Among other things, the purpose of the Act is to encourage small employers to become plan sponsors and establish retirement plans for their workers. The new Act is quite possibly one of the largest overhauls of the U.S. retirement system in more than two decades. The Act’s primary objective is to encourage employers to give their employees the necessary tools to save for their own retirement.

Over the past decade, the American workforce has changed drastically. According to the U.S. Small Business Administration, small businesses now account for over 99% of businesses in this country while small business employees make up over 40% of the American workforce. As the dynamic of the workforce and employees have changed, so have the needs of many Americans and the way they prepare for retirement. For most Americans, their employer retirement plan is the main and often only retirement savings tool available to them.

Historically small business owners wear many hats, and many decisions for their employees are often left solely for the owner to figure out. One such decision many small business owners are left considering is their ability to offer a retirement plan, not only for themselves but for their employees as well. Offering such a benefit may feel too complicated or inaccessible to many employers. The cost, complexity and confusion frequently associated with retirement plans often leads a business owner to decide that an employee retirement plan is simply not worth the trouble, leaving employees without this important retirement savings tool. The provisions of the SECURE Act alleviate many of the obstacles and limitations previously facing small business owners. In doing so, the hope is that many more Americans will have access to workplace retirement plans.

Two of the most significant changes to retirement plan law provided by the SECURE Act is the tax incentive provided to employers and the flexibility and ease of joining other companies in a multiple employer plan. The small business tax credit, a less highly publicized but extremely important provision of the SECURE Act, provides an annual tax credit for employers that offer a new retirement plan. In certain circumstances, employers will have a tax credit of up to $5,000 of plan costs for the first three years the employer offers a retirement plan to their employees. The Act increases the credit from $500 per year up to $5,000 per year for three years.

Additionally, the SECURE Act allows unrelated small employers to band together in “open” multiple employer plans (MEP). MEPs are essentially a pooled employer plan which often reduces the costs and administrative duties each employer would otherwise bear alone. Prior to the new Act, only “closed” MEPs were allowed, meaning only businesses with a prior affiliation or connection such as a membership or association were able to join or establish a MEP.

Other notable provisions and incentives of the SECURE Act include:

  • Encourages 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.
  • Simplifies rules and notice requirements related to qualified nonelective contributions in safe harbor 401(k) plans.
  • Extends 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.

The SECURE Act aims to encourage small business owners to establish retirement plans for their employees through the offer of financial incentives. The intention of the Act was to efficiently and cost-effectively give small employers many of the same options that are offered to large and mid-size employers. A greater number of employers are now afforded the ability to create a path forward to greater access to sophisticated retirement plans and advisors, which ultimately improves the retirement readiness for millions of Americans across the country. To truly improve participation for small business owners and their employees, employers should speak with a retirement plan specialist, like those at Polaris Greystone, to see how the new provisions of the Act may improve their retirement plan. Contact us today to learn more.

Polaris Greystone Financial Group, LLC is a federally registered investment adviser. The information, statements and opinions expressed in this material are provided for general information only and are subject to change without notice. This material does not take into account your particular investment objectives, financial situation or needs, is not intended as a recommendation to purchase or sell any security, and is not intended as individual or specific advice. Investing involves risk and possible loss of principal capital. Advisory services are only offered to clients or prospective clients where Polaris Greystone Financial Group, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Polaris Greystone Financial Group, LLC unless a client service agreement is in place.