5 things small business owners need to know

The 2022 omnibus package includes legislation that would strengthen the way Americans save for retirement, potentially raising major roadblocks across the country. of Ensuring a strong pension law of 2022 (SECURE 2.0) builds on the original SECURE Act of 2019 by reforming rules around retirement savings, including increasing required minimum distributions (RMDs) and allowing workplace savings plans to offer retirement benefits.

The new law contains several provisions to strengthen America’s retirement system by boosting savings in workplace plans, expanding support for small businesses that want to help workers prepare for retirement, and increasing already economically sound tax incentives. With all the new changes in SECURE 2.0, here are six things small business owners should know.

1. A small business startup loan includes: SECURE 2.0 adds a start-up credit to cover up to $5,000 of administrative costs for employers with up to 50 employees for the first three years of establishment. It also clarifies that small businesses that join a Multi-Employer Scheme (MEP) are eligible for the credit. The provision of tax credits provides a strong incentive to employers by limiting the administrative burdens associated with establishing and managing an employee pension scheme.
2. Expanding automatic enrollment; From 2025, 401(k) and 403(b) plans are required to automatically enroll eligible participants, although employees may opt out of coverage. There is an exception for small businesses with 10 or fewer employees and new businesses less than 3 years old. The expansion of automatic enrollment will help more workers save for retirement, especially younger and lower-wage workers.
3. Establishing a startup 401(k) plan: Beginning in 2024, employers who do not offer a retirement plan will be allowed to offer a starter 401(k) plan or safe harbor 403(b) plan to employees who meet age and service requirements. Under the Starter Plans, the annual rollover limit will be the same as the IRA contribution limit, and employers may not make non-matching or non-elective contributions to the Starter Plans. The starter scheme offers a great entry point for small businesses, especially as employers don’t have to match contributions, meaning even the smallest of businesses can offer something to their employees.
4. Part-time worker changes supplies: Beginning in 2025, employers will be required to allow part-time workers (those with more than 500 hours per year for two consecutive years) to participate in their pension plans after two years of service. Employees with more than 1000 hours of service should be inducted after one year of service. Because the workforce now includes more part-time workers than in the past, that means more workers will be eligible to contribute to employer-sponsored retirement plans.
5. The military spouse tax credit creates: SECURE 2.0 establishes a tax credit for up to 100 employers, ensures that military spouses are eligible for their retirement plans within two months of the date of hire, ensures that each military spouse receives 100% of all employer contributions, and guarantees each military spouse. Eligible for any matching or non-elective contribution eligible for two years of service only. The tax credit is up to $200 for a military spouse and up to $300 for an individual up to three years of employer contributions.
6. Simple Employee Selection Delay and Retention Restrictions: The legislation increases the employee election deferral limits for SIMPLE (Savings Incentive Matching Plan for Employees) IRAs and caps it at 10% for employers with no more than 25 employees. For employers with 26-100 employees, it increases by 3% or 4% if they make a disproportionate contribution.

A survey of 500 small businesses across the country found that only 26 percent of those surveyed offered a 401(k) retirement plan. Small businesses cited three main reasons for not offering plans: 1) they believe their operations are too small to qualify, 2) they can’t afford to pay, or 3) they believe the plans are too expensive to offer and administer. With the majority of American workers employed by small businesses, it is important that small employers are equipped with the tools they need to provide employees with retirement options. With the new provisions introduced through the SECURE 2.0 Act, there is hope that small businesses will be in a better position to fund employee retirement plans.