A significant law was recently passed that adds tax breaks and makes changes to employer-provided retirement plans. Does your small business have a current plan for employees or are you’re thinking about adding one? If so, you should familiarize yourself with the new rules. The Setting Every Community Up for Retirement Enhancement Act (SECURE Retirement Act) was signed into law on December 20, 2019 as part of a larger spending bill. Here are three provisions of interest to small businesses under this new Employee Retirement Income Security Act – ERISA compliance.

Multiple Employer Plan

Employers that are unrelated will be able to join together to create one retirement plan. Beginning in 2021, new rules will make it easier to create and maintain a multiple employer plan (MEP). A MEP is the operation of a single plan by two or more employers with no relation. But there were barriers that made it difficult to setting up and running these plans. Soon, there will be increased opportunities for small employers to join together to receive better investment results, while allowing for less expensive and more efficient management services.

Increased Tax Credit Under The SECURE Act

There’s an increased tax credit for small employer retirement plan startup costs. Are you wanting to set up a retirement plan, but haven’t gotten around to it yet? If so, new rules increase the tax credit for retirement plan startup costs to make it more affordable for small businesses to set them up! Starting in 2020, there will be a credit increase by changing the calculation of the flat dollar amount limit. The new limit will be as the greater of $500, or the lesser of:

• Multiplying $250 by the number of employees with non-high compensation of the eligible employer who are eligible to participate in the plan.
• Or $5,000.

Automatic Plan Enrollment Tax Credit

There’s a new small employer automatic plan enrollment tax credit. Not surprisingly, when employers automatically enroll employees in retirement plans, there is more participation and higher retirement savings. Beginning in 2020, there’s a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. This credit is on top of an existing plan start-up credit (from the description above) and is available for three years. It is also available to employers who convert an existing plan to a plan with automatic enrollment.

SECURE Retirement Act: Additional Provisions

These are only some of the retirement plan provisions in the SECURE Retirement Act. There have also been changes to the auto enrollment safe harbor cap, non-discrimination rules. These are new rules that allow certain part-timers to participate in 401(k) plans, increased penalties for failing to file retirement plan returns and more. Contact us to learn more about your situation.