Our business currently has a retirement plan and we are considering adding automatic enrollment. We have heard that there are new tax credits available to employers who include automatic enrollment features in their plans.
How does the tax credit work and are there any special requirements that would apply?
The simple answer is that if you adopt an automatic enrollment provision in any plan year that starts after December 31, 2019, you may be eligible for tax credit of $500 per year for the first three years the plan includes auto enrollment. This credit is in addition to any other start-up tax credits for which you may be eligible.
However, there are specific eligibility requirements you must satisfy to qualify for this credit:
The automatic enrollment tax credit will be beneficial for many small employers, but it is important to understand the nuances associated with adopting automatic enrollment and determine if it is right for you. For example, the EACA includes an extended deadline for correcting nondiscrimination tests and the ability for participants to withdraw amounts automatically withheld within a short window. However, one of the main reasons the EACA is not more widely adopted is that the provision must apply to all eligible participants, not just those newly hired.
If you are considering automatic enrollment solely to take advantage of the new tax credit, consider if the additional requirements associated with automatic enrollment, and specifically EACA, do not create more burden than the $500 credit is worth. As always, DWC is here to help you design a plan that meets your goals and objectives.
For more information on the SECURE Act, please visit our SECURE Act Resource Page.
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