The SECURE Act and Small Business: Affordable Retirement Plans

By at 4 November, 2019, 6:19 pm

The SECURE Act Passed the House by a Vote of 417-3. It’s Time for Senate Action


By Barbara Weltman-

Nearly half of America’s workers (48%) are employed by small businesses. Yet only 44% of companies with fewer than 50 employees offer a retirement plan, which means an estimated 38 million workers do not have the option of saving for retirement through an employer-offered qualified retirement plan.

An important bill that passed the House in May with overwhelming support (a vote of 417-3) would help small businesses offer a retirement plan. The measure – Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE ACT) – would make some dramatic reforms, which are designed to make it easier for small employers to offer retirement plans by cutting administrative costs and providing tax incentives.

On October 15, Senator Tim Scott (R-SC) sent a letter to Senate Majority Leader Mitch McConnell (R-KY) urging immediate Senate consideration of the SECURE Act. Scott was joined on the letter by Senators Susan Collins (R-ME), Joni Ernst (R-IA), Cory Gardner (R-CO) Rob Portman (R-OH), Martha McSally (R-AZ), and Thom Tillis (R-NC).

According to the letter, acting on the SECURE Act “would demonstrate to our constituents that the Senate can lead in a bipartisan way for workers saving for retirement, for tax fairness, and for family financial security.”

The key provisions of the legislation that pertain to small businesses are described below.

Codification of Multiple-Employer Plans

Earlier this year, the U.S. Department of Labor issued a final rule that created a venue for facilitating the offering of 401(k) plans by small businesses. The rule permits Association Retirement Plans (ARPs) to group together small businesses, including self-employed individuals, into a multiple-employer plan (MEP).

An MEP offers economies of scale to reduce administrative costs and burdens, and a greater menu of investment options that might otherwise be available to a single small business.

But this is only an administrative rule that could be changed by a future Administration. The SECURE Act would legislatively establish MEPs as an option for small businesses to extend retirement savings to their employees.

In some respects, the rules under the SECURE Act would move beyond the administrative rule and create significant opportunity for small businesses to help employees save for retirement. The new law would:

● Permit the creation of “open MEP” to allow offerings to small businesses that are not in the same geographic area or common trade, industry, or profession. (The current DOL rule has some restrictions on what businesses can join the plan.) The open MEP would be administered by a “pooled plan provider” (e.g., a financial services firm).

● Allow unrelated employers on the same insurance platform under the MEP to file a single Form 5500, cutting down considerably on the cost of return preparation and limiting audits to the pooled plan provider.

● Reduce the fiduciary burden on small businesses that want to offer a retirement plan through the single-form rule and shielding one small employer from any liability if another within the MEP violated fiduciary rules.

Increased Tax Credit for Starting a Plan

Currently, if a small business doesn’t have a retirement plan and starts one covering at least one employee who isn’t an owner or owner’s spouse, there’s a federal tax credit of $500 for the first three years of the plan. The credit is meant to help cover administrative costs of setting up the plan and educating employees about their participation in it. The SECURE Act would increase the credit to the greater of:

● $500, or

● The lesser of $250 times the number of participants who aren’t highly compensated employees or $5,000.

The enhanced credit could still be claimed for up to three years.

New Credit for Automatic Enrollment

To encourage employers to automatically enroll employees in 401(k) plans and SIMPLE-IRAs as a way to encourage retirement savings by workers, the SECURE Act would create a new tax credit of $500 per employee who is automatically enrolled. And employers with plans that don’t yet have an automatic enrollment feature could convert the plan to one with automatic enrollment and qualify for the new credit. This credit would be in addition to the credit for starting a retirement plan; it would also run for up to three years.

Simplification of Safe Harbor 401(k) Plans

Currently, 401(k) plans can avoid burdensome testing for nondiscrimination by meeting safe harbor rules. The SECURE Act would make it even easier to meet the safe harbor rules and be assured that the plans are nondiscriminatory. Simplification would result from:

● Eliminating a special notice requirement currently in place.

● Allowing amendments to nonelective status at any time before the 30th day before the close of the plan year.

Coverage for Part-Time Workers

Currently, employers can exclude part-time employees (those working fewer than 1,000 hours per year) from participation. The SECURE Act would require employers to cover part-timers who’ve completed at least one year of service (based on the same 1,000-hour rule) or three consecutive years of service with at least 500 hours in each. Employers that do not use the safe harbor rules would be able to exclude part-timers from testing under the nondiscrimination rules.


In today’s tight job market, being able to offer a qualified retirement plan is an important way for small businesses to compete for talent, maintain talent, and attract the skilled employees they need to scale their businesses. The SECURE Act supports small businesses do this affordably and with greater ease.

The Small Business & Entrepreneurship Council (SBE Council) strongly supports the SECURE Act and agrees with Senator Scott and his colleagues that the time to act is now!

Barbara Weltman is the founder of Big Ideas for Small Business, Inc., which publishes Idea of the Day® and the e-newsletter Big Ideas for Small Business®. She is an attorney and a prolific author of important books such as J.K. Lasser’s Small Business Taxes, J.K. Lasser’s Guide to Self-Employment, and Smooth Failing, and is a trusted professional advocate for small businesses and entrepreneurs. She is on the advisory council of SBE Council. Weltman is also a guest blogger for and other sites. She has been named one of the 100 Small Business Influencers in the nation. Follow her on Twitter @BigIdeas4SB.


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