Recently you may have heard that Congress passed the SECURE Act. What is it? Well Congress loves their acronyms, so stay with me here. It’s the Setting Every Community Up for Retirement Enhancement Act of 2019. Clever huh?
The bill aims to increase the access to tax-advantaged accounts and preventing older Americans from outliving their assets.
To do this certain existing rules were relaxed to encourage employers that don’t currently have retirement plans to start one. Others allow retired individuals to delay required distributions from their qualified accounts.
One such rule for employers allows businesses to sign-up part-time employees who work either 1,000 hours through out the year or have three consecutive years with 500 hours of service.
The earlier one can start saving the better the potential outcome!
Here’s a great site to get fully up to speed on the new legislation:
https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743
My Two Cents 
Lindsey, in your experience, at what size of a small business do you see employers begin offering (or would now offer with this SECURE Act) retirement plans as part of a benefits package?
Do you think these relaxed rules on the 401(k) participation will bring in more older workers or younger workers? And if there were one addition you could make to benefit those saving for retirement, what would you like to see done?
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Joe,
Great questions! As you probably already know small businesses can range in size and be measured by employees as well as revenue. They can also be set up under any business structure (sole proprietorship, LLC, corporation or partnership.)
The main drivers, for when a business begins offering a retirement plan, consist of the goals and the need. Some of them happen to be both. An owner with a handful of employees may want to start setting aside a larger chunk of money now that the business has grown. Perhaps a business that is a little more mature would like to attract/retain talent, therefore, the plan (and it’s features) are implemented in that fashion. Lastly, employer contributions to employees can be used to reduce tax liability for the company.
So there’s no specific size (employee number or sales amount) when plans are started. What may be a better way to answer the question would be to check out the options afforded to small businesses. 401(k) plans have expenses (administrative) that are most often incurred by the employer. So a barrier to starting one may be the hesitation to pay that cost. Thus the SECURE ACT allows more tax credits and incentives to offset some of those costs, especially in the beginning.
Other employer based offerings, like the SIMPLE IRA, which functions similarly to a 401(k) are only allowed for business with less than 100 employees. This option may have very low or no administrative cost. However, the trade off is the reduced amount allowed to contributed by both the employee and the employer.
The new rules for the SECURE ACT as it pertains to 401(k) participation will hopefully bring both younger as well as older workers. This is because the legislation opens the door for part-time employees. Previously, an employer could exclude anyone who didn’t have 1000 hours and 1 year of service from the plan. Now, in order to participate an employee only needs to have worked any 3 consecutive 12-month periods with at least 500 hours in each 12-month period (and has reached age 21).
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