SECURE Act: Tax Credits for Employers Who Offer Company Retirement Plans

By Chad Halbur, CFA | President and Senior Investment Manager | Cornerstone Private Asset Trust Company


The SECURE Act passed on December 20, 2019, has broad implications for retirement plans. It requires changes in how we save and take money out of retirement accounts. Also, this act has numerous impacts on how company-sponsored retirement plans operate and the features of those plans. This article will not attempt to cover the entire landscape of implications but focus on one area, the new or expanded tax credits for small employers (100 or fewer employees) who offer company-sponsored retirement plans to their employees.

This legislation has two specific tax credits that affect company retirement plans that small employers should be aware of.

An Increase in Tax Credits for New Retirement Plans

First, if you are a small employer who has not set up a retirement plan (401k, SEP, or Simple IRA plan), but wish to do so, the tax credit in the SECURE Act has sweetened the pot. The new law increases the credit for establishing a new plan from a max credit of $500 a year for the first 3 years to the greater of:

(1) $500 or
(2) The lesser of:

a. $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan, or
b. $5,000

The credit applies for up to three years. For most employers, this is a significant increase from the previous max credit of $500 per year for 3 years. [Section 1.04 – Increase in credit limitations for small employer pension plan startup costs]

Additional Credits for Automatic Enrollment

Second, the SECURE Act provides an additional tax credit if a small employer enrolls in or changes over an existing 401k or Simple IRA plan to include the automatic enrollment feature. The automatic enrollment feature changes the rules for employees. Instead of the employee “opting” in for a certain percentage, the employee would automatically be signed up for the plan at a set amount (which increases over time) unless they “opt-out”. Automatic enrollment has shown to increase employee contributions and yield higher retirement savings. The tax credit is $500 per year for up to 3 years. This helps defer the cost of the plan. The credit can be used in addition to the plan start-up credit. [Section 1.05 – Small Employer Automatic Enrollment Credit]

Look for more updates on how the SECURE Act impacts company-sponsored retirement plans in future newsletters.

If you you’d like to learn more or have questions about how this may impact your company-sponsored retirement plan, please contact Chad Halbur at [email protected]

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