RISE Act Aims to Increase Access to Full Tax Credit on Workplace Retirement Plans for Businesses with 1 to 9 Employees

In the future, all businesses will offer a retirement plan to their employees. I believe that. 

It won’t happen overnight or next week or next month, but it will happen. There certainly are factors that could influence the progress, but our mutual goal should be to remove the hurdles for businesses to create opportunities to start a workplace retirement plan.  

That’s why Paychex supports the Retirement Investment in Small Employers (RISE) Act, or H.R. 6007, introduced in the U.S. House of Representatives on Oct. 19, 2023. This bi-partisan bill introduced by Rep. Claudia Tenney (R-NY) and Rep. Dan Kildee (D-MI), both familiar with running small businesses, aims to assist micro-businesses (employers with one to nine employees) in bringing them closer to parity with larger businesses by increasing access to the entire tax credit for implementing a workplace plan. 

This bill is necessary to correct an oversight in 2022’s SECURE 2.0, which followed the signing of the SECURE Act in December 2019 that, when taken together, are the most significant pieces of retirement legislation since the Economic Growth and Tax Relief Reconciliation Act in 2001. However, the formula to calculate the amount an employer can claim in retirement plan start-up costs was not changed, inadvertently disadvantaging micro-businesses from taking a larger tax credit available to bigger businesses. Under this law, the cost of establishing a defined contribution plan in the workplace is higher than the tax credits available to micro-businesses.

What Could the RISE Act Do?

The RISE Act would increase the tax credit up to $2,500, up from $500, each year for three years once the plan is established, plus an additional $500 per year if auto-enrollment is implemented. In total, micro-businesses could gain up to $9,000 in tax credits, which generally covers the start-up costs of a workplace retirement plan, plus so much more. 

If this bill were to become law, employees also can benefit from a Saver’s Match, which would allow employers to facilitate deposit of a government-funded match of 50% of an employee’s IRA or retirement plan contributions annually — up to $2,000 per individual — directly into an employee’s IRA or retirement plan. Similar to the RISE Act, should it become law, the Saver’s Match would not go into effect until Jan. 1, 2027. 

Think about that. Micro-businesses that want to compete for top talent have an immediate challenge, not to mention a labor market that continues to get tighter as 10,000 people a day retire from the workforce and go on social security. The law allows bigger businesses an opportunity to offer one of the most-desired benefits and get a tax credit that covers the start-up costs. Consider how micro-businesses in states with workplace retirement plan mandates must have felt when the state required them to use the state plan that would have cost them time to manage or establish a private plan to help employees save for retirement, all while a federal law offered a credit that barely covered those costs.

It certainly lends one explanation as to why 69% of private-industry workers had access to employer-provided retirement plans as of March 2022 but only 52% of the workers participated, according to the U.S. Bureau of Labor Statistics.  

Why Paychex Advocates for Businesses

As an officer of Paychex, a company that has advocated for America’s business community for more than 52 years, we needed to act on behalf of micro-businesses. I’m a mission-based person and I like to tie everything back to a just cause. Ensuring that your employees are prepared for retirement is a just cause. 

I think society requires it. You can’t go a week without reading something sobering about where social security is headed. Also, as citizens of this country, we need to have a supplemental benefit so that we can have a chance at a secure and dignified retirement. 

Here’s a stat: Businesses with fewer than 10 employees — so, micro-businesses — account for 78% of all businesses in the United States, according to the Statistics of U.S Businesses annual report from the U.S. Census Bureau. That’s tens of millions of employees who need a workplace plan to start building their retirement savings, as well as millions of employers who must factor additional expenses into their budget if they want to establish a workplace retirement plan. 

Employees Gain from Workplace Retirement Plans

There are certain drivers that make me believe more and more businesses will establish workplace plans. The biggest influence is this generation that’s coming into the workforce; they care about retirement a lot earlier than generations did 20 to 30 years ago. They also have shown they are saving a lot sooner in their lifetime.

Businesses themselves will be a factor, as well. When 50% of businesses start offering something and your business does not, prospective job candidates will look at you and say, “Wow, I’m surprised you don’t offer that?” When 60% to 70% of businesses offer a retirement plan and you don’t, now you’re at a major disadvantage. 

The original intent of the SECURE Act and SECURE 2.0 was to grant individuals more access to retirement savings and it would seem Congress wanted every business owner to get these tax credits for facilitating that access. The RISE Act intends to do that and because of how the tax laws are structured in this country, the best retirement plan for most employees is a 401(k), which is why I see that as a primary vehicle for employers looking to start a workplace plan.  

Employers Gain from Workplace Retirement Plans

What’s also important for employers to understand is that employees can’t do this by themselves. They need your business to establish a retirement plan. In doing so, though, employers can also share in the benefits beyond the tax credits and the creation of a great recruitment and retention tool.

Employers can participate in their own retirement plan, allowing them to put some of their profits away, and because they usually are making more money than employees, they can be the biggest contributor and biggest beneficiary of the plan and use it as a tax vehicle. 

And a retirement plan is one of the lowest-cost benefits you can offer, so if you can get more tax credits to get 100% or close to 100% paid for, it’s just a good decision. Take what might have been on your mind for a long time and get it started because establishing a workplace retirement plan is a good investment.  

Businesses that truly care about their employees’ welfare should be compelled to act. It demonstrates that you care, not only about your employees but also about the community. The opportunity is there to help create a better future because healthy employees lead to healthy communities.