Bank of America Corp., which launched a 401(k) plan for small businesses in 2012, did so because more than 3 million of its small business customers asked for it, according to managing director Erin Donnelly. Through the retirement and personal wealth solutions group at Bank of America in Pennington, NJ, the plan uses PAi as the custodian of record and Morningstar Investment Management LLC as the 3(38) investment advisor.
His Merrill Small Business 401(k) helped Bank of America expand its small business retirement plan options, which include SIMPLE (Savings Incentive Plan for Employees) plans and SEP (Simple Employee Pension) individual retirement accounts.
Ms. Donnelly declined to say how many small employers use Merrill’s Small Business 401(k) plan or how many assets it has, as the bank does not publicly disclose those numbers.
Bank executives credit customer demand and improved tax credits to the growth of their 401(k) plan offerings after the December 2019 passage of the SECURE Act. They are also optimistic about additional incentives introduced as part of a three-pronged bill called Security 2.0.
The current tax credit, which took effect in December 2019, is valid for three years for employers with up to 100 employees and is equal to 50% of their pension plan, up to an annual amount of $5,000. This is 10 times more than the previous $500.
Other incentives are at work. For example, under the Stronger Pension Protection Act of 2022, which passed the House in March, the tax credit would be sweeter for employers with 50 or fewer employees, a segment of the market that is less likely to offer pension plans. According to industry experts. The Act covers 100% of their pension plan start-up costs, up to an annual cap of $5,000. In addition, they receive an additional credit for their contributions over five years, up to a $1,000 cap on behalf of each employee. The proposed credit covers 100% of employer contributions in the first two years, then gradually reduces to 75% in the third year, 50% in the fourth year and 25% in the fifth year.
An employer contributing $1,000 to each of its 20 employees, for example, would receive a $20,000 credit in the first two years, a $15,000 credit in the third year, a $10,000 credit in the fourth year, and a $5,000 credit in the fifth year. .
Anticipated new credit coupled with strong demand has led bank executives to set ambitious growth targets. Mr. Zugaro of Huntington is looking to add 100 to 200 plans a year for the next five years. JPMorgan’s Mr. Cote, meanwhile, aspires to become the leading 401(k) provider in the small-plan market by $5 million over the next 10 years.
Despite competition from recordkeepers, robo-401(k) providers and employer plans, the executives are hopeful that employers can consolidate their plan assets to get better value.
Bank of America’s Ms. Donnelly said, “Depending on the size of the plan and some other factors, premiums may be lower in a joint employer plan, but not in all cases.”
With its strong built-in small business clientele, bank executives believe they have an important strategic advantage over their non-bank rivals.
“There is room for many solutions,” said JPMorgan’s Mr. Cote. “The small-plan market is historically low, so I think it’s a healthy thing for new competitors to emerge.”
