The Setting Every Community Up for Retirement Enhancement Act of 2019, also known as the SECURE Act, passed in December of 2019 with the goal of increasing access to retirement accounts and helping Americans save for their retirement. Employers can look forward to greater accessibility and tax credits, but should also be wary of greater penalties and fines when failing to meet regulations.
Multiple Employer Plans
The SECURE Act encourages small employers to provide retirement plans for their employees by allowing multiple employers to join together to maintain a qualified retirement plan. Previously, employers who did this had to have a common nexus. For example, they all had to be in the same industry. However, with the new rules, employers can join together without a common nexus. This protects the qualified status of the plan even if one of the employers in the group fails to meet their requirements.
One of the biggest deterrents for small businesses from setting up retirement plans is their belief that doing so is complex and expensive. The ability to join together without a common nexus to form a retirement plan could provide lower start-up costs for employers when they’re setting up retirement plans.
Tax Credits for Employers with the SECURE Act
The SECURE Act increases the tax credit for small employers that set up a retirement plan. Employers will now receive the greater of:
- The lesser of $250 multiplied by the number of non-highly compensated eligible employees or $5000
The plan will also provide up to $500 per year to employers who implement automatic enrollment in their plan.
Safe Harbor 401(k) Retirement Plans Under the SECURE Act
The SECURE Act increases the cap under which an employer can automatically enroll employees into a retirement plan to 15% of wages (previously 10%) unless the employee elects otherwise.
Part-time employees can now participate in retirement plans if they have worked at your company for at least 3 consecutive years and logged at least 500 hours. Previously all participants had to have logged 1,000 hours or more over a 12 month period or they could be excluded from an employer sponsored retirement plan.
The SECURE Act increased penalties for retirement plans. The IRS imposes failure to file Form 5500 penalties at $250 per day and cap at $150,000 (previously they were $25 per day with a $15,000 cap).
Fines may also be received from the Department of Labor (DOL). Fines start at $10 per day and go up to $2,233 per day for failing to properly file your plan’s annual report.
Your Next Steps
Whether you already have a retirement plan for your business or if you’re thinking of starting one, consult an experienced advisor to help you maximize tax credits, compare costs and ensure you meet the IRS and DOL’s strict compliance requirements. Failing to meet requirements can cause hefty penalties to the plan sponsor. If you have questions, feel free to reach out to us by sending us a note below, by emailing us at [email protected] or by calling us at (410) 363-7211.
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Tags: SECURE ACT