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A lot is going on with SECURE 2.0, a pending piece of legislation built on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The goal of the bill is to substantially boost the retirement savings of Americans. SECURE 2.0 contains numerous provisions that, if enacted, would affect individuals, employers, and small business owners.

SECURE 2.0 has provisions that bring several important implications for small businesses and would impact their retirement benefits programs, once the pending legislation is passed. These include expanded worker eligibility, automatic plan enrollment, and others. Not to mention the increase in the number of employees your post-employment benefit plan covers.

Sounds like a lot of work, right?

You need not worry.

SECURE 2.0 is designed with small businesses in mind. It will create new tax credits that are specifically designed to help employers.

This blog, the second in our two-part series on SECURE 2.0, post will explore two important and relevant points:

Increased Retirement Plan Start-Up Credit

One of the most significant changes in the retirement law is expanded tax benefits. SECURE 2.0 will double the tax credit for companies starting a retirement plan. Currently, the three-year credit is available for 50% of the qualified startup costs. This is for businesses employing no more than 100 employees.

100% Qualified Start-Up Costs

Eligible small businesses with 100 or fewer workers can claim a credit for 50% of their qualified start-up costs. Effective for tax years starting after 2022, Secure 2.0 would increase it to 100% for employers with 50 or fewer employees.

New Tax Credit

Businesses would also receive a new tax credit. This is a percentage of the employer contribution on behalf of employees, with a per-employer cap of $1,000. This is, however, limited to businesses with 50 employees or less. It will gradually phase out for companies with employees between 51 and 100.

From Less Than 100 to Only 50 Employees

While SECURE 2.0 contains provisions aimed at helping small businesses, it would also bring them some changes that will have negative impacts. In particular, these would be small businesses with 51 to 100 employees.

Because of the stated provisions in the bill, small businesses employing more than 50 individuals cannot take advantage of the total tax credit. Rather, the percentage will gradually phase out as the number of employees increases, as mentioned above.

On the whole, the aim of SECURE 2.0 is to help employers in the U.S. to encourage workers to plan for their retirement. If you are a business owner, the provisions in the bill will definitely impact your business once it’s enacted. This is regardless of whether you’re considering starting a new retirement plan or if you’re already offering one.  

If you’re interested in learning more about whether your small business qualifies for the retirement plan startup Tax Credit, you can learn more here.

An Important Note for the Remainder of 2022

If a plan wants to adopt a new safe harbor 401(k) plan in 2022, the employer needs to adopt that new plan by October 1, 2022 (if the business has a calendar year-end). For a traditional 401 (k) plan, the deadline is based on the employer’s tax status, as shown in the list below:

• S-Corporation (or LLC taxed as S-Corp): March 15 with extension Sept 15, 2023
• Partnership (or LLC taxed as a partnership): March 15 with extension Sept 15, 2023
• C-Corporation (or LLC taxed as C-Corp): April 15 with extension Oct 15, 2023
• Sole Proprietorship (or LLC taxed as sole proprietorship): April 15 with extension Oct 15, 2023

Part one of this 2-part GJM blog series on SECURE 2.0 outlines the changes that may be coming for individuals and how we save for retirement.

GJM’s Molly Wolf contributed this article. Molly has over 15 years of experience specializing in employee benefit plans and is an affiliate member of the American Society of Pension Professionals & Actuaries (ASPPA). She consults with clients on benefit plan design, compliance testing, payroll integration and reconciliation. She also serves as a third-party plan administrator.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business & transaction advisory, healthcare management advisory, outsourced accounting, and risk advisory. The firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution, nonprofit, private equity and utilities.