The SECURE Act: Small Business Owners & Retirement Plans

By January 31, 2020 June 9th, 2020 No Comments

The last several years have been marked by new legislation that has substantially impacted businesses and their owners. The Tax Cuts & Jobs Act of 2017 (“TCJA”) lowered individual marginal tax rates (observed by pass-through business entities), reduced the corporate tax rate, created the Qualified Business Income (QBI) deduction, and made changes to other deductions & limits. The most recent package, the Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”), has made additional changes that will impact businesses, which will in turn affect employees. A few of the key provisions, some of which do not take effect immediately, are listed below and may create opportunities for expansion of retirement plan offerings. Time will tell!

KEY PROVISIONS

  • Maximum Automatic 401k Contribution Enrollment Feature Increased: The maximum amount an employer can elect to defer into a 401k plan on behalf of an employee will increase to 15% of compensation.
  • Retirement Plan Tax Credits Increased: Small businesses are eligible for a larger tax credit for establishing a retirement plan. They are eligible for an additional credit by adopting an automatic enrollment arrangement, subject to specific criteria.
  • Safe Harbor Provision for Retirement Plan Annuities Created: Plan fiduciaries are afforded protections if an in-plan annuity provider doesn’t pay claims, as long as due diligence was documented appropriately.

  • Eligible Employee Definition for 401k Plans Expanded: Eligibility for participation in a 401k plan has been expanded to include employees that have worked at least 500 hours in the last three consecutive years (beginning in 2021), thus increasing the number of eligible employees in future years.
  • Multi-Employer Plan (MEP) Flexibility Increased: MEPs can remain qualified if one of the participating employers fails to fulfill their obligations, as long as all others do not.
  • Employer-funded Plan Adoption Deadline Extended: Plans that are funded only by employer contributions may be adopted up to the due date of the employer’s tax return.

Verum Partners does not provide tax or legal advice. Consult your tax adviser or attorney before implementing any strategy.