It’s hard to believe, but only one in two Americans has access to a 401(k) retirement plan. That’s because many small businesses don’t offer them, especially companies with fewer than 25 employees. That may change soon, as two new laws are making it more attractive for small employers to establish retirement plans for themselves and their workers.
The first regulation is the SECURE Act, the “Setting Every Community Up for Retirement Enhancement.” The other is specifically for New Jersey businesses and is called the New Jersey Secure Choice. Both aim to address a growing problem: nearly 25 percent of all American adults have no retirement savings or pension according to the U.S. Federal Reserve.
Business owners that do offer 401(k)s report that the plans drive recruitment and retention. That’s according to a survey conducted by SCORE, a nonprofit resource partner of the U.S. Small Business Association. So what’s holding small businesses back? Seven out of 10 employers say it’s the expense.
The SECURE Act will help with that. Previously, employers could receive a tax credit of up to $1,500 over three years when they established a retirement plan. Now, the tax credit can be as high as $5,000 depending upon how many non-highly compensated employees are eligible for the plan. There’s another $500 tax credit per year if the plan includes an automatic enrollment feature. To get the maximum possible tax credit, an employer has to offer the plan to at least 20 employees who are not highly compensated.
The SECURE Act will also make it easier for small businesses to set up retirement plans when they band together to offer what are called Multiple Employer Plans or MEPs.
In the Garden State, The New Jersey Secure Choice Savings Program will establish a state-sponsored retirement plan that includes automatic payroll deductions. New Jersey is expecting to have the plan ready in 2021. Employers with 25 or more employees will be required to participate or face penalties and fines.
Sponsors of the legislation say they are assisting the state’s 1.7 million workers whose employers don’t offer a retirement plan. However, if you want more customizability with your company’s retirement plan instead of a state-sponsored plan, consider meeting with a financial advisor this year.
With the federal financial incentives and the looming penalties and fines in New Jersey, 2020 might be the ideal time to offer this highly-valued employee benefit to your workers.
This article was published in Alloy Silverstein’s Spring 2020 Newsletter. Click here for more content or to subscribe.
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