By Andy Medici, American Business Journal featuring Nick Strain, CFP®, CPWA®, AIF®, Senior Wealth Advisor at Halbert Hargrove

Small-business owners are going to see big changes to their 401(k) and worker retirement packages — but there will be some tax credits too.

The SECURE 2.0 Act saw many of its provisions folded into the government funding legislation passed in late 2022. The goal of the legislation was to help workers save for retirement while making it easier for small businesses to offer retirement plans to workers.

Experts say the legislation will help even the playing field for small businesses — a dynamic of added importance amid a tight talent market in which many larger competitors have invested heavily in new benefits and perks.

“SECURE 2.0 is a game changer for small business owners,” said Craig Reid, president and national practice leader of retirement and wealth at at the Marsh McLennan Agency. “A robust retirement plan program is one of the most highly sought-after benefits people look for in a new employer, and small businesses have historically been at a disadvantage to large employers when it comes to this type of benefit.”

One big benefit is a tax incentive for businesses offering 401(k) plans of their own, Reid said.

For businesses with less than 50 employees, there is a startup credit of 100% of administrative costs up to $5,000 (up from the current 50% credit) and additional credits for employer contributions on behalf of employees up to $1,000. That benefit is phased out for small businesses with 51 to 100 employees and also phases out over time, Reid said.

He also said that SECURE 2.0 allows small businesses who currently offer a Simple IRA plan to exchange it for a 401(k) plan without having to close down the plan and wait for a certain period of time.

“If a small business owner has been contemplating a 401(k) plan to attract and retain talent and help grow their business, now is the time,” Reid said.

Nick Strain, senior wealth advisor and chair of the Wealth Advisory Committee at Halbert Hargrove, said the Secure Act has about 92 different provisions. But in addition to the startup 401(k) credit, there are other big pieces of the legislation business owners should be tracking, he said.

That includes, but is not limited to:

  • Allowing employers to offer small financial incentives for employees to contribute to a retirement plan. For example, offering a gift card to get new employees to sign up, Strain said.
  • Employers will now be able to adopt a matching rule that counts an employee’s student loan payment toward the retirement match — and employers using that student loan payment to calculate their own matching contribution. That starts in 2024.
  • The legislation creates emergency savings accounts within retirement accounts that hold up to $2,500. A participant can pull out $1,000 per year for emergencies tax free and repay those withdrawals to build the balance back up again. That begins in 2024.
  • Part-time employees can now participate in a company retirement plan after two years, instead of three, and for working 500 hours a year, down from 1,000.
  • The legislation also requires automatic 401(k) enrollment at a rate of 3% and not more than 10% and not more than 15% of the worker’s total compensation, although businesses with fewer than 10 workers and businesses in operation for less than three years are excluded. That goes into effect in 2025.
  • The relaxation of required minimum contributions and increases in catch-up contributions for older workers.

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