The 2022 comprehensive plan includes legislation to strengthen the way Americans save for retirement, which could lift the nation’s main streets.this Securing a Strong Retirement Act in 2022 (SECURE 2.0) builds on the original 2019 SECURE Act, which amended the rules governing retirement savings, including raising the age required for minimum distributions (RMDs) and allowing workplace savings plans to offer annuities.
The new law contains several provisions that strengthen the U.S. retirement system, which would increase workplace savings plans, expand support for small businesses that want to help employees prepare for retirement and increase tax benefits for those who are already financially secure. With all the new changes in SECURE 2.0, here are six things small business owners need to know:
- Increase Small Business Startup Credits: SECURE 2.0 adds start-up credits to cover 100% (up from 50%) of administrative costs, up to $5,000, for the first three years of the plan for employers with up to 50 employees. It also clarifies that small businesses participating in the Multiple Employer Program (MEP) are eligible for the credit. Tax credit products provide a strong incentive for employers by limiting the administrative burden associated with setting up and managing retirement products for employees.
- Automatically registered extensions: Beginning in 2025, 401(k) and 403(b) plans will be required to automatically enroll eligible participants, although employees can opt out of coverage. Small businesses with 10 or fewer employees and new businesses less than 3 years old are excluded. Expanding automatic enrollment will help more workers save for retirement, especially younger, lower-income workers.
- To create a starter 401(k) plan: Beginning in 2024, employers that do not already offer a retirement plan will be allowed to offer an entry-level 401(k) plan or a Safe Harbor 403(b) plan to employees who meet age and service requirements. With a starter plan, the annual deferral limits will be the same as IRA contribution limits, and employers may not make matching or non-elective contributions to a starter plan. Starter programs offer a great entry point for small businesses, especially considering that employers are not required to match contributions, which means even the smallest small business has something to offer its employees.
- To change the product of a part-timer: Beginning in 2025, employers will be required to allow part-time employees (workers who work more than 500 hours per year for two consecutive years) to participate in retirement plans after two years of service. Employees with more than 1,000 hours of service must be counted after one year of service. Since the workforce now includes more part-time workers than in the past, that means more workers will be eligible to contribute to employer-sponsored retirement plans.
- To create the Military Spouse Tax Credit: SECURE 2.0 establishes a tax credit for employers with up to 100 employees, makes military spouses eligible to participate in their retirement plans within two months of the date of hire, ensures 100% vesting of all employer contributions for each military spouse, and guarantees Each military spouse is eligible for any matching or non-elective contributions they are eligible for only after two years of service. The tax credit is equal to $200 per military spouse plus employer contributions of up to $300 each for up to three years.
- Simple employee selective deferment and catch-up limits: The law also increases the SIMPLE (Employee Savings Incentive Matching Plan) IRA limit for employee optional extensions and increases the limit by 10% for employers with 25 or fewer employees. It also increases for employers with 26-100 employees if they offer a 3% employer non-elective contribution or a 4% matching contribution.
A study of 500 small businesses across the country found that only 26 percent of respondents offer a 401(k) retirement plan. Small businesses cite three main reasons for not offering a plan: 1) they believe their business is too small to qualify, 2) they cannot afford to pay, or 3) offering a plan is too costly to set up and administer. Since the majority of U.S. workers are employed by small businesses, it is important that small employers have the tools they need to provide workers with retirement options. With the new provisions provided by the SECURE 2.0 Act, there is optimism that small businesses will be better able to support their employees’ retirement plans.