On December 20, 2019, President Trump signed into law the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) as part of the year-end spending bill. The act contains a number of reforms, including increasing the age at which workers are required to withdraw assets from IRAs and 401(k)s to 72, requiring certain long-term part-time workers to be allowed to participate in a company’s 401(k) plan, and allowing savings from 529 accounts to be used to pay off student loan debt.
Importantly for small business owners, the act also aims to encourage small businesses to offer retirement plans by increasing the maximum tax credit small businesses can receive for starting plans and making it easier for unrelated businesses to join together and offer open multiple employer plans (MEPs).
Small businesses with up to 100 employees compensated at least $5,000 in the past year are eligible for a start-up retirement plan tax credit of $250 per non-highly-paid employee elibigle to participate in the plan. There is a minimum tax credit of $500 and a maximum of $5,000. Moreover, small businesses are also eligible for an additional $500 credit if the retirement plan includes automatic enrollment.
Small businesses can also more easily join together with other small businesses to offer retirement plans. Under the act, small businesses can now join together with other unrelated businesses to participate in an open MEP. Previously, businesses could only join together to offer MEPs if they had a prior connection, like membership in an association.
An MEP can be either a defined-benefit pension plan or a defined-contribution retirement plan. Joining an MEP with other companies will theoretically lower the administrative costs associated with retirement plans; these administrative costs have hindered the ability of small businesses to offer such plans in the past. In addition, the act removed the IRS’ “one bad apple” rule, which stipulated that all businesses in an MEP were subject to disqualification for violations committed by a single business in the MEP.