Small Businesses are Incentivized Into Setting Up Plans
Firstly, the legislation obliges employers to automatically enroll any new joiners into defined contribution (DC) plans, if they are set up after 2024.4
This comes not long after 17 States – including California and Illinois – introduced rules requiring small companies to offer their employees either a 401(k) plan or an auto-IRA (individual retirement account) program.
The SECURE Act 2.0 provisions also offer tax credits to small businesses to incentivize them into creating retirement plans for employees. These include a three-year start-up tax credit covering 100% of the early-stage administrative costs of setting up a plan, an increase from 50% - with an annual maximum threshold of $5000 for businesses with up to 50 employees.5
This tax credit package is particularly generous, given that it would be extremely rare for a small business retirement plan to incur set up costs exceeding $5000.
Moreover, small businesses with fewer than 100 employees - who are sponsoring new plans - are also entitled to tax credits on employer contributions. The maximum credit here is $1000/year for each NHCE (non-highly compensated employee) earning up to $100,000, although this will decline over a period of five years.
These tax credits are likely to play a significant role in encouraging small businesses to establish retirement plans.
https://www.broadridge.com/webinar/asset-management/encouraging-new-plan-creation