2 Ways Secure Act 2.0 Helps Small Businesses

What You Need to Know

Only 1 in 4 small and midsize businesses offer employer-sponsored 401(k)s.
The Secure Act 2.0 package includes a proposed Starter 401(k) so that even the smallest business can offer something to employees.
The legislation also offers new and expanded tax credits to small businesses offering retirement plans.

With the Senate Finance Committee last month unanimously approving the Enhancing American Retirement Now (EARN) Act, just weeks after the Senate Health, Education, Labor and Pensions Committee released draft legislation for the RISE & SHINE Act, retirement security is back on the congressional agenda.

These proposals were, of course, all part of the Senate’s response to the Secure Act 2.0 package, which passed the House in March and is an iteration of the original Secure Act, which became law in 2019. Behind its many names lies a solid and straightforward purpose: to better prepare Americans for retirement.

Many studies have found workers behind on savings. For example, only 36% of non-retired adults think their retirement savings are on track, according to the Federal Reserve. Meanwhile, a separate survey from the Insured Retirement Institute found that most workers don’t have sufficient retirement savings and aren’t putting aside enough to catch up.

Leveling a Steep Hill for SMBs

One sector disproportionately affected is small-business employees, many of whom don’t even have access to employer-sponsored retirement plans. In fact, despite employing the largest share of American workers, only 1 in 4 small and midsize businesses offer employer-sponsored 401(k)s today. Due to this, employees of these businesses have a steep hill to climb to try to achieve some level of financial security.

In truth, it’s also hard to place a ton of blame on employers for this. Even three years from the original Secure Act, a vast majority of small and midsize businesses haven’t been able to execute any 401(k) offerings. They couldn’t afford to offer their workers a worthwhile retirement plan. Thankfully, armed with bipartisan support, Secure 2.0 appears to take an essential step in the right direction in giving SMBs and their employees access to meaningful retirement plans.

Secure Act 2.0’s Starter 401(k)

Although anyone can get an IRA, very few do. Included in the Secure Act 2.0 package is a proposed Starter 401(k) similar to an IRA. The contribution limit is the same as that of an IRA — smaller than the current 401(k) contribution limit — and the plan does not allow employer matching contributions. Although no match is allowed, the benefit is the removal of nondiscrimination testing, so even the smallest business can offer something to employees.