5 Key SECURE Act Takeaways for Business Owners
Review key changes related to automatic enrollment, retirement plan access and more.
Passed in December, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 has wide-reaching impacts on retirement savings and estate planning for many Americans. But what does the SECURE Act mean for small businesses?
Implementing retirement plans for your business can seem daunting, but the payoffs in employee retention and potential tax benefits are important factors to take into consideration. The SECURE Act now removes some of these administrative burdens and adds more tax incentives. In short, it streamlines setup and contributions, making it much easier to set your valued employees up for their financial future, and easier for you to get it up and running.
Let’s take a look at five ways these new changes can benefit your employees as well as your bottom line. Your advisor can also walk you through each of these in detail.
1. Tax credit for automatic enrollment
Automatic enrollment has the most significant impact on plan participation and overall lifetime savings, increasing both and improving retirement readiness. Now, small businesses that offer automatic enrollment to their employees will get a $500 tax credit.
Benefit for you: Enjoy immediate tax credits for the year you set up auto‐enrollment.
Benefit for your employees: They won’t have to think about enrolling and will start working toward retirement readiness immediately.
2. A tax credit for establishing a retirement plan
If you’ve been putting off establishing a retirement plan, this is the time. Previously, small businesses were eligible for a $500 credit toward the startup costs of establishing a retirement plan, and now the potential credit could be as much as $5,000. Retirement plans have the potential to increase retention rate for employees, so this is a great way to improve continuity in your workforce.
Benefit for you: Retirement plans improve loyalty and retention, and a potential tax credit of $5,000.
Benefit for your employees: They can feel secure that they are putting away money toward the future and like they are a really valued part of your team.
3. Lifetime income disclosure for defined contribution plans
This would ensure that all defined contribution plans deliver what’s called a lifetime income disclosure to each participant at least once every 12 months. This is designed to essentially show how much income the lump sum balance in retirement could generate. While the methodology for calculating lifetime income is still being evaluated, this is an important way to illustrate the value of the plan to your individual employees. Showing the value of what they are building every day is a powerful tool to incentivize and motivate.
Benefit for you: Pulling together this kind of information helps you understand the impact you are making in the lives of your employees.
Benefit for your employees: They get to see how what they put away now has long‐term benefits for their future and builds over time.
4. Increase annuity options inside retirement plans
Annuities protect retirees against the risk of outliving their incomes. But many 401(k)s avoid annuities, in part because of liability concerns around insurers not being able to make payments. The new rules ease this concern, potentially paving the way for more annuities to be offered inside of retirement plans, which can be a significant benefit you can offer as an employer.
Benefit for you: Annuities are an impressive benefit to offer that helps you compete with bigger companies for qualified employees.
Benefit for your employees: Assurance they won’t outlive their income and confidence in their future.
5. Increase small employer access to retirement plans
Multiple employer plans (MEPs) are retirement plans that allow small businesses to partner up and create a pooled employer plan (PEP), bringing participants into one larger plan. This reduces administrative costs and time, as well as lessens the fiduciary duties for each individual employer and offers participants access to plans offered by larger employers. As of January 1, 2021, the SECURE Act will reduce fiduciary liability concern and cost among small employers, making it easier to set up and offer 401(k) plans and eliminate the “bad apple” rule, which removes liability for all plans if one plan doesn’t comply with the regulations.
Benefit for you: You can now partner with other companies that don’t even have to be in your industry. This purchasing power can help you be competitive in the jobseeker market by offering comparably robust retirement plans to larger corporations.
Benefit for your employees: They get a wider variety of options for saving for retirement and access to investments they might not normally have access to
Talk to your advisor about retirement planning strategies for your business and how you might be able to structure them. Think about:
- Any gaps in your existing plan
- What type of plan would best benefit your employees, including auto-enrollment capabilities and lifetime income offerings
- Your long-term business goals. Do you need to hire in the next year? What could help create a more attractive employment package for new hires or recruiting?
The content provided herein is based on Raymond James’ interpretation of the SECURE Act and is not intended to be legal advice or provide a tax opinion. This document is a summary only and not meant to represent all provisions within the SECURE Act.