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The Securing a Strong Retirement Act of 2022 (SECURE 2.0) has emerged as a significant milestone to improve small businesses’ access to retirement benefits. SECURE 2.0 builds on the initial 2019 SECURE law. The act focuses on retirement savings, such as 401(k) and 403(b) plans and individual retirement accounts (IRAs). The comprehensive rule was enacted on Dec. 29, 2022, and many of its provisions apply specifically to small businesses with 100 or fewer employees. A survey by ShareBuilder 401k revealed that only one-quarter (26%) of small businesses offer 401(k) plans. Many respondents stated that they didn’t offer plans because they thought their business was too small to qualify, they couldn’t afford to match contributions, and retirement plans were too expensive to set up and manage. Fortunately, by embracing new provisions offered through SECURE 2.0, small businesses can better support workers’ retirement plans. This article explores key aspects of SECURE 2.0 that small businesses should be aware of and suggests how they can use them to their advantage. Understanding SECURE 2.0 Provisions Congress’s passing of SECURE 2.0 is meant to improve small businesses’ access to retirement benefits, improve retirement rules and encourage more retirement savings. The act contains more than 90 retirement-related provisions, so consider these seven favorable provisions impacting small businesses: 1. Startup credit —The startup credit will cover 100% (up from 50%) of administrative costs up to $5,000 for the first three years of plans 1. established by employers with up to 50 employees. Small businesses joining a multiple employer plan (or MEP) are also eligible for the credit. The tax credit offering incentivizes employers by limiting the administrative burdens of establishing and managing retirement plans. 2. Starter 401(k) plans —Starting in 2024, employers who don’t already offer retirement plans can offer a starter 401(k) or safe harbor 403(b) plan to employees who meet age and service requirements. The starter plan provides an ideal first step for small businesses since employers aren’t required to match contributions. With this provision, even the smallest businesses can offer their employees something to help with retirement. Through this provision alone, the American Retirement Association estimates that 19 million workers will gain access to a workplace retirement plan. 3. Automatic enrollment —Beginning in 2025, many 401(k) and 403(b) plans will be required to enroll eligible participants automatically; however, employees may opt out of coverage. Remember, there’s an exception for small businesses with 10 or fewer employees and new businesses under 3 years old. The expansion of automatic enrollment is meant to help workers—especially younger and lower-paid workers—save for retirement. 4. Required minimum distribution (RMD) —At a certain age, savers must start withdrawing a minimum amount from specific retirement accounts, including 401(k) and traditional IRAs. Since Jan. 1, 2023, a provision for later-stage savers increased the RMD age to 73—and, in 2033, the RMD age will increase to 75. Furthermore, starting this year, Roth contributions won’t be included when calculating the RMD. 5. Part-time worker offerings —Starting in 2025, employers will be required to allow part-time employees with more than 500 hours per year after two consecutive years of service to participate in their retirement plan. Employees exceeding 1,000 hours of service will be included in plans after one year of service. This will increase the number of workers eligible to contribute to employer-sponsored retirement plans. 6. Student loan matching —Individuals with student loans can balance saving for retirement and repaying student loans instead of choosing one or the other. Starting in 2024, when a borrower makes a qualified student loan repayment, their employer may match that amount by contributing to a 401(k) plan, 403(b) plan or SIMPLE IRA. 7. 529 plans —A 529 plan (or college savings account) is a tax-advantaged plan used to pay for education expenses. Starting January 2024, 529 beneficiaries can roll up to $35,000 to a Roth IRA from a 529 plan if it’s been open for at least 15 years. Previously, 529 accountholders faced taxes and penalties for nonqualified withdrawals, so this change allows beneficiaries to roll leftover 529 funds (e.g., unused educational funds) to the beneficiary’s Roth IRA to help save for retirement. SECURE 2.0 changes may help American workers save for retirement while balancing current expenses. In turn, these changes also allow small businesses to support their employees with retirement savings, which can improve their attraction and retention efforts. Summary With most American workers employed by small businesses, employers must be empowered with the tools and resources to offer workers retirement options. Although complex, SECURE 2.0 presents many opportunities for small businesses to strengthen their employee benefits and support the overall financial well-being of their workforce. It’s critical for employers to stay informed on SECURE 2.0 changes and be proactive in their adoption. Contact us today for more workplace guidance.

Pooled Employer Plans (PEPs) have emerged as a game-changer in the retirement savings landscape, offering businesses and employees a streamlined and cost-effective approach to retirement planning. This article aims to demystify the concept of PEPs, exploring their structure, advantages, and the potential impact they can have on the retirement readiness of employees. What is a Pooled Employer Plan? A Pooled Employer Plan is a type of retirement savings arrangement established by the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019. The SECURE Act introduced PEPs to encourage more small and medium-sized businesses to offer retirement benefits to their employees. PEPs enable unrelated employers to join a single retirement plan, sharing the administrative and fiduciary responsibilities, which can lead to significant cost savings. Key Features Multiple Employers, One Plan: PEPs allow unrelated employers to participate in a single retirement plan. This consolidation of resources is designed to make retirement benefits more accessible to a broader range of businesses. Administrative Efficiencies: By pooling resources, employers in a PEP can achieve economies of scale. This means shared administrative costs and responsibilities, reducing the burden on individual businesses and potentially lowering overall plan costs. Fiduciary Oversight: A PEP typically designates a pooled plan provider, responsible for assuming the role of the named fiduciary. This provider takes on certain administrative and fiduciary responsibilities, relieving employers of some of the legal obligations associated with offering a retirement plan. Benefits for Employers Cost Savings: PEPs offer the advantage of reduced administrative and operational costs. Sharing these expenses among multiple employers can result in considerable savings compared to maintaining individual retirement plans. Reduced Administrative Burden: Employers participating in a PEP can offload much of the day-to-day administrative tasks to the pooled plan provider. This allows businesses to focus on their core operations while ensuring employees receive valuable retirement benefits. Access to Expertise: PEPs are often managed by experienced professionals, providing a level of expertise that might be challenging for individual small businesses to secure. This can enhance the overall quality of the retirement plan. Benefits for Employees Enhanced Investment Options: PEPs, with their larger asset pools, may offer a more diverse range of investment options for participants. This can empower employees to tailor their investment strategy based on their individual preferences and risk tolerance. Increased Portability : As employees move between employers participating in the same PEP, they can maintain continuity in their retirement savings. This portability is especially beneficial in today's dynamic job market. Simplified Decision-Making: With the administrative aspects managed by the pooled plan provider, employees can enjoy a simplified and user-friendly experience when it comes to enrolling, managing contributions, and accessing information about their retirement plan. PEPs versus Traditional 401(k)/403(b) Compared to traditional 401(k) or 403(b) plans, PEPs offer a distinct advantage by consolidating administrative tasks. Traditional plans for individual employers often come with higher administrative burdens and costs, making them less feasible for smaller businesses. PEPs, with their shared responsibilities and reduced costs, level the playing field, allowing a broader spectrum of businesses to provide robust retirement benefits. Another notable difference lies in fiduciary responsibilities. In a PEP, a pooled plan provider assumes many fiduciary duties, alleviating individual employers from some of the legal obligations associated with managing a retirement plan. This shift in responsibility can be particularly advantageous for businesses with limited resources or expertise in retirement plan administration. In essence, while traditional plans continue to be a staple in the retirement benefits landscape, PEPs introduce a modern, collaborative approach that addresses the evolving needs of both employers and employees. The decision between a PEP and a traditional plan hinges on the specific requirements and circumstances of each employer, emphasizing the importance of a tailored approach to retirement planning. Contact Simco today for more information.