7 Actions You Need to Take to Gain Every Advantage of the SECURE Act
The “Setting Every Community Up for Retirement Enhancement Act of 2019” or SECURE Act is now law, and there are seven things you should be doing now, or in the near future, to fully take advantage of it. Why? Because unemployment is at a record low, employees are scarce, and finding and keeping good people is – I'm sure – top of mind. By taking these actions, you'll help make your company more attractive to prospective and current employees.
Start a 401(k) Plan
First, if you don't have a 401(k) retirement plan, then for goodness sake, now's the time to start one. Thanks to the SECURE Act, eligible small businesses can receive up to a $5,000 tax credit (that's a credit, not a deduction) for three years for establishing a plan. That's a cumulative $15,000 credit. It's a great incentive to help lower your taxes while providing a vehicle for you and your employees to put money away for the future. Plus, if the new plan has automatic enrollment or if you convert an existing plan to an automatic enrollment design, you can also get an additional $500 credit for three years (up to $1,500).
Communicate Changes of SECURE Act
Next, make sure your older employees know they can keep working. The SECURE Act increases the required age when people have to take distributions from their retirement accounts from 70½ to 72 years old. That benefits them because it gives them more time to put tax-deferred money away. It also benefits you because you can take advantage of their experience, their mentorship for younger employees, and their ability to keep doing their jobs so you don't have to suffer a disruption from their departure.
Understand Pooled Employer Plans
Then, learn more about the potential benefits of "pooled employer" plans, which are allowed under the new law. Pooled employer plans utilize pooled plan providers that can negotiate reasonable fees and favorable administrative arrangements, depending on the size of the overall plan. It's a way to more efficiently and cost-effectively manage retirement plans and, if done the right way, can help save you money.
Consider Offering Annuities
It may be a great time to get together with your investment advisor and discuss offering lifetime income products such as annuities in your plan’s investment lineup. Annuities are insurance products that provide a stream of income after retirement, rather than a lump sum. In the past, if an insurance company failed, an employer could have been held responsible. Thanks to the SECURE Act, that liability has gone away if you do your due diligence, so now there’s yet another option you have available to make your plan as attractive as possible and each employee can determine – on their own – if they think it makes sense.
Updated Rules for New Parents
If you have employees who are new parents or thinking of having or adopting kids, let them know about the new benefits available to them. Provisions within the SECURE Act will enable them to withdraw up to $5,000 penalty free from their retirement accounts within a year of having or adopting a child to cover associated expenses. In addition, that distribution (which is still taxable) can be repaid back to the retirement plan at a future date.
Part-time Employees Can Save for Retirement
Soon, your part-timers – those who meet the eligibility age for the plan and have worked at least 500 hours of service annually for the past three years – will need to be allowed to contribute through your retirement plan. The SECURE Act allows this, which is a great way for those workers to put a few bucks away for retirement and for you to provide an added attraction to work at your company. This move will help you personally, too, because the more people in your company that contribute to your retirement plan, the more you'll be able to put away for your own retirement and still be compliant with the discrimination tests that limit contributions from higher-paid individuals and executives. Of note, employers are not required to provide contributions of any kind to long-term, part-time employees.
529 Plans Get a Boost from SECURE Act
Finally, if your company doesn't offer a 529 plan, now's the time to set it up. These plans have become popular over the past few years because they allow individuals to put after-tax money away that will grow tax free and can be withdrawn without penalty in the future as long as it's used for higher education expenses or private or religious school tuitions. These plans are flexible too: employees can open 529 accounts for any family member, including grandchildren. The SECURE Act has now taken things one step further by allowing $10,000 to be withdrawn and used to pay down student loans. Withdrawals also can be used to reimburse for expenses related to apprenticeship programs.
The SECURE Act is huge for eligible employers, especially for small-business owners. It gives more incentives for employers to establish plans, earn tax credits, lower their tax liability, and help their employees save for a dignified retirement.
More importantly, these changes should be widely communicated to current and prospective employees because the better your benefits, the greater your chance of attracting and holding on to your company's biggest assets.