The most comprehensive pension reform in 20 years, the Setting Every Community Up for Retirement Enhancement (SECURE) Act is a step forward when it comes to affording people greater access to retirement plans.

SECURE Act incentives include:

• Tax credits to encourage business owners to set up a workplace retirement plan

• 401(k) plan design features to help employees better prepare for their futures

• Administrative improvements for managing a retirement plan

Tax Credits for Small Businesses

Tax credits for eligible employers are designed to alleviate some of the start-up costs of a retirement plan, and incentivize businesses with 100 or fewer employees to offer one.

Two credits are available:

• Startup costs - A tax credit of 50% of eligible startup costs up to $5,000 for each of the plan’s first three years

• Auto-enrollment credit - An additional tax credit of $500 per year for a three-year period for including auto-enrollment as a plan feature

This equates to up to $5,500 a year, or $16,500 over three-years for an employer who takes advantage of both tax credits.

401(k) Plan Design Features

There are countless ways to design a retirement plan, from the type of plan and available features, to who is eligible and how much they can contribute. Here we highlight a few of the SECURE Act provisions that may enhance your retirement plan design for today’s generationally diverse workforce. 

• Increased default savings cap - To help boost savings, the SECURE Act allows safe harbor plans with automatic-enrollment to increase the auto-escalation cap from 10% to 15% of an employee's paycheck. This means that plans can be set to automatically increase each year until employees reach a retirement deferral rate of 15%. Of course, employees can opt out at any time.

• Eligibility for part-time employees - Prior to the passage of the SECURE Act, part-time employees could be excluded from participating in the 401(k) plan. Now part-time employees who work at least 500 hours per year in the preceding three years are able to make elective deferrals. However, employers are not required to match these contributions.

• Extended saving options for pre-retirees - With a quarter of the workforce made up of Baby Boomers, [1] many are looking to save longer. The SECURE Act has raised the required minimum distribution (RMD) age from 70 ½ to 72 (and this looks to be extended further with the pending passage of the SECURE Act 2.0). Participants born on or after July 1, 1949, can save longer without being required to withdraw from their tax-deferred retirement account.

• Lifetime income illustrations - These projections are designed to give participants an idea of what their account balance may provide as a monthly income amount, beginning at age 67, if the balance was annuitized. The purpose of the illustrations is to help participants learn whether they’re on track to retiring comfortably.

Administrative Improvements

The SECURE Act also alleviates some of the administrative burdens that come with managing a company-sponsored retirement plan.

Plan sponsors can easily switch to a safe harbor with non-elective contributions:

• At 3% any time prior to the 30th day before the close of a plan year;

• At 4% if on or after the 30th day before the end of the following plan year; AND

• Eliminate safe harbor notice requirements for plans providing non-elective contributions.

Keeping Your Plan SECURE

While this is a sampling of the exciting and beneficial elements of the most comprehensive retirement plan reform in two decades, there is so much more in the original and the impending SECURE Act 2.0.

This is where we come in. Contact us to learn more about the current features, requirements and options that SECURE offers in order to enhance your 401(k) or other retirement plan.

[1] Bureau of Labor Statistics. “Labor Force Statistics from the Current Population Survey.” 2020.