Small Businesses Get Big Help from SECURE 2.0 Law
Small businesses — and the people they employ — benefit from new retirement rules that could make it easier and more cost-effective for these companies to offer retirement plans and ultimately help close the retirement savings gap for small businesses.
According to AARP, approximately 5 million businesses with nearly 57 million employees lack retirement plans at work.
Read: Which came first? Emergency Savings or Your Retirement Goal?
A set of new retirement rules are in place as part of the federal spending bill signed into law at the end of December. The provisions, collectively known as Secure 2.0, expand the tax credit that companies with fewer than 50 employees pay for administrative costs when they launch the new program.
Previously, employers with fewer than 100 employees were eligible for a tax credit of up to 50% of program administrative costs, up to an annual limit of $5,000. Secure 2.0 increases this credit to 100% of the cost for employers with up to 50 employees. According to Vanguard, employers with 50 or fewer employees will get up to $1,000 in additional credit per employee, but the number of employees will be gradually reduced from 51 to 100.
Read: Does having emergency savings give you a stronger financial future?This Secure 2.0 provision is built on top of it
“We’ve had a lot of people retire from small businesses and get nothing but praise,” said Brandon Reese, president of TBS Retirement Programs. “These changes will help small businesses, help employees who might not otherwise be able to save, and ease Social Security pressure. Small businesses account for half the U.S. economy, and this will have a positive knock-on effect on retirement savings.”
According to a survey published by ShareBuilder 401k, almost three quarters (74%) of small businesses currently have no retirement plans for their employees.
Respondents to the ShareBuilder survey cited three main reasons for not starting a plan: 58% felt their business was too small to qualify for the plan, 32% said they could not afford it, and 24% believed 401 (k) The plan is too small and expensive to set up and manage.
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“Small businesses think that offering retirement plans is onerous and expensive and risky. But technology has changed and it’s become easier. The government is handling the cost part. Some states are playing a role and mandating that you have to do Ubiquity Retirement and Savings “A lot of work has been done to make offering retirement plans a breeze,” said Chad Parks, CEO and founder of . Why don’t you do it? ”
Security 2.0 provisions “could help change that and help strengthen the small businesses that form the backbone of America,” Parks said.
There have been efforts at the state level to encourage small businesses to offer retirement plans. More than 30 states have considered state-mandated retirement plan legislation for businesses of all sizes. Of those states, 14 have signed on to make mandatory retirement plans into law.
New Secure 2.0 rules now provide the federal government with an impetus to encourage small businesses to offer retirement plans.
Ultimately, experts say, this will help small businesses be more competitive in attracting and retaining workers as they compete with larger corporations whose human resources departments hand out hefty benefits.
Nick Foulks, consultant and director at Great Waters Financial, said: “Paying 100 per cent of costs is really a shot in the arm for small businesses to retain good people.”
Parks said there is a misconception that employers must contribute to retirement plans. There is no such requirement.
The Secure 2.0 provisions could put pressure on small businesses if their plan costs more than $5,000 a year, or if it takes longer to bear the weight of the plan after credit expires, Foulks said.
A total of 52% of employers offer their employees a 401(k) or similar employee-sponsored retirement plan. According to a 2021 report from the Transamerica Institute, a nonprofit private foundation that includes the Transamerica Center, large (90%) and midsize companies (83%) more often Provides employee-funded planned retirement research.
“People know they should save for retirement, but do they know that? People have inertia. Saving can be hard. It can be confusing. They may not have the option to work. So there are hundreds of thousands of people heading toward a cliff,” Parks said.
According to the National Institute for Retirement Security, the average working family has little retirement savings. When including all households, not just those with retirement accounts, the median retirement account balance was $2,500 for all working-age households and $14,500 for those near retirement.
According to the National Institute for Retirement Security, this may explain why about 40 percent of seniors rely entirely on Social Security for their retirement income. As of July 2022, the average monthly Social Security benefit for a retired worker is $1,624.
“SECURE 2.0 is absolutely a game changer for small businesses in terms of what they can do and offer. It’s one of the biggest changes in 15, 20 years,” Reese said.
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