SECURE 2.0 Act Tax Credits Make Offering a Retirement Plan Benefit for Your Employees Easier and More Affordable

Our Pooled Employer Plan (PEP) solution simplifies plan setup and provides fiduciary support, access to low-cost investments, and retirement education for your employees.

If you own or lead a small or medium-sized business and you’ve been thinking about offering a retirement savings plan benefit for your employees, there may be no better time than now to get started. The recent passage of new legislation known as the SECURE 2.0 Act contains several provisions that make it more affordable and tax-efficient for employers to provide this key benefit to help their employees save for the future.

Offering a Retirement Plan Helps Attract and Retain Talent

Offering a competitive benefits package, including a retirement savings plan, is essential to your organization’s ability to attract and retain qualified talent. According to a recent AARP study, nearly half of Americans do not have access to a retirement plan at work. However, workers who have access to a retirement savings plan are more likely to stay at a company long-term, and more likely to recommend the company to friends and family. 

Moreover, offering a 401(k) can help your organization build a positive reputation as an employer of choice. Job seekers expect you to offer a 401(k) in your benefits package—62% seriously consider the availability of a retirement plan when deciding to accept or stay at a job. Given the pervasive talent shortages plaguing the tech industry, being able to offer a retirement plan for employees may be a game-changer when it comes to improving your recruiting and retention efforts. 

SECURE 2.0 Introduces New Tax Breaks for Employers

As if enhancing your ability to attract and retain top talent wasn’t reason enough to consider offering a retirement savings plan, under SECURE 2.0, you can potentially take advantage of tax incentives toward your plan startup costs and employer contributions. SECURE 2.0 builds on the original Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The goal of SECURE 2.0 is to make it more attractive for small businesses to offer workplace retirement savings plans and improve workers’ retirement preparedness. 

Here’s a breakdown of the new tax credits: (Please consult your tax advisor directly to confirm whether these tax credits are available to you, if you have any limitations, and for more information on how your company can specifically maximize these benefits.)

Increased Start-up Cost Tax Credit

The original SECURE Act provided tax credits for small employer plans; SECURE 2.0 significantly enhances the available tax credits—including some that could cover some, or potentially all, of the operating and administrative costs for a small plan for up to three years. Specifically, the tax credit is essentially an offset against your company’s tax liability, which may make the credit more valuable than a deduction.

 
Eligible employers can receive a tax credit for qualified start-up costs* related to setting up a workplace retirement plan. Under SECURE 2.0, the tax credit is available to Pooled Employer Plans (PEPs) and Multiple Employer Plans (MEPs) for the first three years after an employer joins and maintains an eligible plan.

Employer Size	Start-up Cost Tax Credit**
1-50 employees	100% of eligible start-up costs
50-100 employees	50% of eligible start-up costs
100+ employees	No start-up cost tax credit

Source: National Association of Plan Advisors

“Qualified start-up costs include ordinary and necessary expenses paid by an eligible employer related to the setup or administration costs of an eligible retirement plan, or costs related to employee retirement plan education. 

**The maximum credit is lesser of $5,000 or $250 times the number of eligible non-highly compensated employees (NHCEs).

Employer Contribution Credit

Employers may also receive tax credits for contributing to a retirement plan on their employees’ behalf.

Employer Size	Employer Contribution Tax Credit***
1-50 employees	Up to 100% employer contribution for first 2 years;75% in third year;50% in fourth year;25% in fifth year
50-100 employees	Same as above, but phased out based on number of employees above 50
100+ employees	$0

***Available for the first five tax years the plan is maintained. Maximum tax credit per eligible employee is $1,000. Credit is only available for contributions for employees whose annual compensation is $100,000 or less. 

Additionally, employers with up to 100 employees receive an automatic enrollment credit of $500.

(Employers should consult their tax advisor to confirm if SECURE 2.0 tax credits are available to them.)

The new SECURE 2.0 tax credits may be an incentive for your organization to consider setting up a new retirement plan for your employees. And here’s some more good news: You don’t have to set up a retirement plan benefit on your own. The 401(k) Tech Collective Plan is a Pooled Employer Plan (PEP) solution that’s affordable, easy to implement, offers low-cost investments, and delivers fiduciary support for you and retirement plan education support for your employees. 

Read more about the benefits of the PEP here, or visit our website to learn more.  
Interested in learning more about our competitive retirement plan solutions for small businesses? Let’s have a conversation. Email us at 401k@washingtontechnology.org.