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SECURE Act 2.0: On the horizon for workforce retirement plans

June 2, 2021

As Congress continues to vet the second phase of the Setting Every Community Up for Retirement Enhancement (SECURE) Act prior to voting, CPAs can begin preparing to advise their clients. You might already be getting questions about some of the changes being proposed from the first phase of the Act.

  • Mandate auto-enrollment across all employer-sponsored 401(k) plans. 
  • Increase tax credit for small-employer retirement plan startup costs.
  • Allow businesses to join with one another to offer retirement plans to employees.
  • Increase the required minimum distribution age to 75.
  • Allow individuals to pay down a student loan instead of contributing to a 401(k) plan. 

The SECURE Act — Expanding and preserving retirement savings

Many Americans don’t have a way to save for retirement. The SECURE Act’s goal is to address this problem by providing incentives for businesses and easing the restrictions that hinder small- and medium-sized businesses from offering 401(k) plans. 

The Power of PEP

The Pooled Employer Plan (PEP) 401(k) allows unrelated businesses to pool their assets into a single plan administered by a professional plan manager. This could give your clients a simple, cost-effective solution that eases the burden of 401(k) management. By making the 401(k) more manageable, your clients can use this in-demand plan to help attract new employees and retain top talent.

The SECURE Act 2.0 — Good for business, good for employees

Multigenerational workforce: Today’s workplace is more generationally diverse than ever. Older employees are working longer and millennials make up roughly one-third of the American workforce. For older employees, the bill would raise the required minimum distribution (RMD) age from 72 to 75 so they can save for longer. 

For younger employees, they could opt to make contributions that go toward paying off student loans. These contributions would still be eligible for employer matching.  

Automatic enrollment encourages participation: The bill would require smaller businesses with 401(k) and 403(b) plans to be automatically enrolled. Typically, the initial enrollment amount is at least 3 % and then increased each year. There is an exception for businesses based on the number of employees. To add even more convenience, businesses could integrate automatic enrollment with payroll.

Increased tax credits for small business start-ups: For start-up businesses with up to 50 employees, the current tax credit is equal to 50% of administrative costs, capped annually at $5,000. Under the new proposal, the 50% would be increased to 100% and businesses of up to 100 employees could qualify. In addition, the bill would give employees a $1,000 tax credit in the first year of a defined contribution plan, phased down gradually over five years. 

Reduced penalties to make compliance easier: Being compliant with tax regulations can be a challenge for businesses. The SECURE Act 2.0 would allow businesses and taxpayers to avoid harsh penalties for inadvertent errors.  It would also protect retirees who unknowingly receive retirement plan overpayments.

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Staying ahead of the curve in an ever-changing legislative and regulatory environment can enhance your consultative opportunities and solidify your most-trusted advisor status with clients. Read the full article at payx.me/vscpa-secure.