Many Americans have not adequately planned for retirement. Some studies suggest that over 90% of our population will not have financial wherewithal to retire at age 65. Coupled with the fact that the Federal Social Security program is severely underfunded, our aging population is staring into a financial abyss.
The SECURE act is a legislative solution that attempts to address this problem by providing financial incentive to small employers to make available retirement programs to their employees. Through this act, the government is employing a new strategy to encourage retirement savings. The social implication is that the government views the small business community as a mechanism to initiate behavior change at a large scale.
WHAT IS THE SECURE ACT?
The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act was signed into law in December 2019.
Before the SECURE Act, a small business could claim a tax credit equal to 50% of “qualified startup costs,” up to a $500 limit. Now, the limit is the lesser of (a) $250 multiplied by the number of non-Highly Compensated Employees (non-HCEs) eligible for plan participation, or (b) $5,000. This credit is available for up to three years.
Employers can earn an additional $500 tax credit by adding an automatic enrollment feature to a new or existing 401(k) plan. The credit is available for each of the first three years the feature is effective. When combined, these credits can total up to $5,500 per year ($16,500 for 3 years).
To qualify, employers must meet 3 requirements:
1) Have 100 or fewer employees who earned at least $5,000 in the preceding year; and
2) Cover at least one non-highly compensated employee; and
3) Did not offer a retirement program in the preceding 3 tax years
Employers must file IRS Form 8881 (Credit for Small Employer Pension Plan Startup Costs) with their tax return to utilize the credit.
Small employer dilemma
The government is correct in their assertion that small business employers can have a material impact on changing the financial behavior of our citizens. Small employers with less than 100 employees comprise 95%+ of all registered employers within the United States. These small businesses employ over 40% of the American workforce and yet many of these employers do not offer a retirement program to their employees.
It's not that these employers don’t care about their employees or don’t see them as tantamount to the success of their business. Employers of all sizes use salary and benefits to attract and retain staff.
Why then do small employers often not offer a 401k employee benefit even though they typically invest in a more much expensive and arguably less effective employee benefit, like health insurance?
The answer is that offering a 401k program is much more time consuming and complex to manage than a health insurance. This is due to a couple of reasons. The support network for offering health insurance is well built with many insurance brokerage firms available to guide and support employer administrators through the delivery of this employee benefit. This is simply not the case in the 401k world.
The health insurance industry also is way ahead of the retirement industry in terms of offering packaged programs (ie: association health plans) that save employers time by reducing administrative and fiduciary responsibilities.
What is the advantage of participating in the Mountain West 401k plan?
The Mountain West 401k is one of the few 401k programs that has been modeled after successful turnkey health insurance programs.
Mountain West leverages the collective purchasing power of many employers to provide relief from administrative and fiduciary obligations like building the 401k program, reporting to participants, reviewing investment performance, procuring insurance and bonds, assessing service provider performance, performing discrimination testing, filing 5500’s and performing a plan audit (if over 100 employees).
Mountain West has a no cost, simple set up process and includes automatic enrollment as one its core plan features. Mountain West takes on the two major administration responsibilities associated with automatic enrollment which includes distributing an annual notice to eligible employees that explains the feature and withholding wages from automatically enrolled participants at the plan’s default deferral rate.
Lastly, the Mountain West 401k program is managed and serviced by experienced business executives who have served in CEO and CFO roles in small employers and understand the unique challenges facing these businesses.
MoutainWest 401k allows small business employers to offer a premium 401k employee benefit with administrative ease and executive support, while being able offer a plan at little to no cost in the first three years of inception.
Interested in maximizing your SECURE tax credit, learning more, getting a quote, or joining? Visit the website at moutainwest401k.com and complete the “get a quote” form today.
About the author
Mike Monroe is the founder of Mountain West 401(k).
Mike graduated from Gonzaga University with a finance and accounting degree and for the first 25 years of his professional career served in fiduciary roles as a Certified Public Accountant (“CPA’) and Chief Financial Officer (“CFO”) for many employers in the Pacific Northwest. Mike was the president of an employee benefits firm for 10 years where he launched the largest health insurance and 401k multiple employer programs for technology employers in North America, serving over 700 small business technology employers in 20 states.
Mike calls Tri-Cities home and volunteers as the President of the School Advisory Committee at Christ of King and is a U9 and U6 coach for the Three Rivers soccer club. Mike enjoys paddle boarding, soccer, skiing and hiking throughout the Inland Northwest.