The SECURE 2.0 Act, and Colorado
SECURE 2.0: Taking strides to close the 401(k) access gap for small businesses in Colorado.
In 2019, the passage of the SECURE Act was an important step in bringing the retirement crisis to national attention. The legislation widened access to employee-sponsored retirement plans and highlighted how many of those without access are working for small businesses. In Colorado specifically, a whopping 48% of the workforce is employed by small businesses, according to the U.S. Small Business Administration. While the SECURE Act addressed retirement savings’ challenges from a plan participant perspective, plan-level issues persisted.
The proposed Securing a Strong Retirement Act of 2022, colloquially dubbed SECURE 2.0, builds upon the existing legislation, while including provisions that have the potential to reduce the burden on small businesses of offering a retirement benefit. With as many as 50% of Coloradans working for businesses with 25 or fewer employees are without access to an employee-sponsored plan according to the Georgetown Center for Retirement Initiatives, a comprehensive approach is necessary to begin to bridge this gap.
The SECURE 2.0 Act is bipartisan legislation that has the capacity to expand access to employee-sponsored retirement plans to those who have been traditionally overlooked. Those working for these businesses are often further hindered by the misconception that saving for retirement is restricted to white-collar workers, while small business owners have fewer resources at their disposal to perform the due diligence required to not only start but maintain a compliant and engaging retirement plan offering for their employees.
Offering a retirement plan is a benefit that will only continue to grow in prevalence, as retirement-centric legislation is moving through the federal level as well as many states enacting state-mandated IRAs targeting small business — to include Colorado’s Secure Savings Program.
With the goal of expanding retirement savings accessibility to more individuals, SECURE 2.0 would target businesses with less than 100 employees — where the coverage gap is most prevalent. The legislation would do this through tax credit incentives and relaxing reporting error penalties. While the current retirement legislation affords businesses with 50 or fewer employees a start-up tax credit up to 50% of the cost of establishing and administering the plan for the first three years, the proposed legislation expands this credit to businesses with 100 or fewer employees and increases the tax credit to 100% of these costs — up to $5,000/year.
Recognizing another barrier unique to small businesses, the anticipated legislation would also loosen plan paperwork regulations. Retirement benefit rules and regulations can be overwhelming to navigate even for larger companies with a suite of internal HR professionals. Small businesses lacking as many internal resources may be more exposed to reporting errors and associated fines. In widening access to employee-sponsored plans, loosening penalties for some reporting errors is a meaningful way to alleviate some of the stressors associated with administering a smaller retirement plan.
For plan participants, SECURE 2.0 includes features that would also likely bolster participation within 401(k) plans. From autoenrollment features to proposed changes to RMDS and contribution limits, there is a lot of legislation small business owners need to stay on top of. While SECURE 2.0 is not yet codified, anticipated changes would require plan sponsors and plan providers to ensure that participants have up-to-date information. The participant level changes are not simply limited to those nearing retirement but are also likely to impact those just starting to save if the proposed autoenrollment and escalation features are passed.
Offering a retirement plan is a benefit that will only continue to grow in prevalence, as retirement-centric legislation is moving through the federal level as well as many states enacting state-mandated IRAs targeting small business — to include Colorado’s Secure Savings Program. It is not easy to remain dialed into the changes and for most small business owners, it is unreasonable. Therein lies the value finding a retirement plan provider that truly supports you and your business — having someone who can convey the most important current and future changes in legislation is essential. Customer support from an industry expert truly eases the adoption of a retirement plan and helps evade challenges with non-compliance, misinformation, or missed savings opportunities.
Carrie Della Flora manages the Client Experience team and is responsible for providing authentic client service and support to Shelton Capital Management’s 3(38) Fiduciary clients. Della Flora joined Shelton in 2018 with 16 years of industry experience, having recently worked at Matrix Financial Solutions.