INDUSTRY INSIGHT
YOUR FINANCES
SPONSORED CONTENT
SECURE or INSECURE ACT:
What Implications
Does This New Law
Have for You?
PART 2
P
art 1 of this article, which featured the individual implications
of the SECURE Act, was in the last edition of this magazine.
This is Part 2 of the article, which addresses the impact on
small businesses. The government is trying to allow for more
small companies to participate in retirement plans. One of the biggest
hurdles is the cost of plans, and some of these new provisions address
that. Others are meant to give more people access to retirement plans
and to encourage more savings. The main provisions are listed below:
MULTIPLE EMPLOYER PLANS (MEPs) TO BE ALLOWED
Unrelated companies will be allowed to join with each other to
form a pooled employer plan starting in the plan year beginning
after 12/31/2020. This can potentially benefit small companies that
cannot afford to have their own plans, as it will create economies of
scale for them. It will also potentially help companies by providing
better fiduciary oversight and by reducing individual administrative
requirements. A pooled plan provider (PPP) will be designated
and will be responsible for the oversight plus all the administrative
work, including loans, hardship withdrawals, and distributions to
participants. Most of the fiduciary requirements will be fulfilled by
third parties, thereby reducing the responsibilities of the company
to items such as providing materials to participants and handling
deferrals from participant paychecks. This will apply starting in the
plan year beginning after 12/31/2020.
INCREASED TAX CREDITS FOR SMALL EMPLOYERS STARTING
RETIREMENT PLANS
Small businesses that are starting a new retirement plan will be
eligible for a tax credit of up to $5,000. In the past, the maximum tax
credit was $500, but that is now the floor. Companies will earn a tax
credit of $250 per eligible non-highly compensated employee up to
the max of $5,000. So, a company with 20 or more eligible employees
can max out at $5,000. This is intended to help companies with the
startup costs of plans, which can be higher than ongoing costs. This is
available as of 12/31/19.
TAX CREDIT FOR SMALL EMPLOYERS ADOPTING AUTOMATIC
ENROLLMENT
Small businesses can earn a tax credit of $500 per year for three
years if they adopt an automatic enrollment program for the
company plan. Automatic enrollment is when an employer can enroll
employees in the plan unless the employees affirmatively elect not to
participate. This is meant to increase participation overall, since many
people do not take the time to enroll on their own. This is applicable
as of 12/31/19.
AUTOMATIC ESCALATION OF RETIREMENT PLAN CONTRIBUTIONS
INCREASED
If companies choose to adopt automatic escalation to satisfy
nondiscrimination testing, they can now max that out at 15% of
compensation. It was previously 10%. Automatic escalation is when a
company automatically increases employee contribution percentages
each year to get them to save more for retirement. For example, a
company may automatically increase employee contributions by 1%
per year unless the employee affirmatively elects not to participate.
PART-TIME EMPLOYEE PLAN ELIGIBILITY WILL BE LESS
RESTRICTIVE
Employees who work part time will now be allowed to participate
in the plan with either (1) one year of service with at least 1,000
hours worked, or (2) three consecutive years of at least 500 hours
worked. However, these employees can be excluded from matching
contributions and/or plan testing. This will be effective for plan years
beginning after 12/31/2020.
ACCESS TO ANNUITIES IN RETIREMENT PLANS WILL BECOME
MORE RELAXED
Lifetime income from annuities will be available for those who may
benefit from it. Plans that do not have this benefit will be permitted
to transfer assets to another provider with it available. There is a lot to
be figured out here, as annuities are complex and varying, depending
on the provider.
In the end, the SECURE Act has some favorable and unfavorable
provisions, depending on individual circumstances. On the business
side, there is really nothing negative in the Act. As with any change
in the law or tax code, you should consult a professional about the
implications for you. The need for a professional financial advisor
becomes clearer each time major legislation such as this is passed.
This Industry Insight was written by David W. Hoffmann.
David W. Hoffmann, CFP®, AIF® of H Financial
Management, is a private wealth manager based
in Southpointe serving the ever-changing financial
needs of his clients. Please contact David at H Financial
Management, 400 Southpointe Blvd., #420, Canonsburg,
PA 15317, Phone: 724.745.9406,
Email: [email protected], or via the
Web: www.hfinancialmanagement.com.
Securities offered through Triad Advisors, LLC, Member
FINRA/SIPC • Advisory Services offered through H Financial
Management.
H Financial Management is not affiliated with Triad
Advisors, LLC.
PETERS TOWNSHIP
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APRIL/MAY 2020
7