Main Content

By Stephen Hofmann

It is hard to go through a day and not hear or feel the effects of COVID-19. The pandemic has impacted everything from our physical and emotional health to our financial health. Companies are asking now more than ever, “Are we in a good financial position?” and “Do my employees feel financially secure?” Having the right vehicle and programs in place are key to boosting your company and employees’ financial health. When employees feel financially secure, your company will benefit¹.

One way employers can provide financial security is by offering a retirement plan to their employees. No two retirement plans are the same, and Midland can help weigh the options. A common question or concern then surrounds the cost of a retirement plan. With the passage of new laws, there are a couple tax credits available to offset this –

 

Start-up Credit

When starting a retirement plan for the first time, it can feel overwhelming. One important factor employers should spend time reviewing and understanding is cost, including administrative and investment costs. Administrative costs comprise record-keeping, plan creation, payroll processing and education meetings. Investment costs cover monitoring and providing recommendations on when to add or remove different investment options. All these costs can be confusing and can add up when there are no assets in the current plan.

There is help to offset the costs of a start-up plan with a startup credit. This credit was recently increased in the Setting Every Community Up for Retirement (SECURE) Act.

The maximum tax credit for start-up costs increases from $500 to $5,000 per year (that is an increase of 10 times!). The actual dollar amount is the greater of:

  1. $500, or
  2. The lesser of:
    1. $250 for each employee of the eligible employer who is not highly compensated and an eligible employee to participate in the plan
    2. Or $5,000 

This credit applies for up to three years, so your total credit can be up to $15,000. Keep in mind this credit is for plans that have tax years beginning after 12/31/2019. The three-year credit period allows your company to become comfortable with the plan as it gets up and running.

 

Automatic Enrollment Credit

If your plan is already up and running, is there any credit out there for you? Yes, there is another option through an automatic enrollment credit. A retirement plan that has this feature, automatically enrolls new eligible employees. That employee then has the option to elect out, but if they don’t, the new employee is on the path to becoming financially secure.

Small employers that have automatic enrollment, can take advantage of a newly created credit under the SECURE Act. The credit is up to $500 per year to help new and existing plans defray some of the plan expenses. If this is a start-up plan, this credit is in addition to the start-up credit allowed under present law. Keep in mind this credit, just like the start-up credit, is only available for three years. Therefore, the credit can be up to $1,500 and is only for start-up plans and existing plans that add this feature beginning after 12/31/2019.

Financial security can also be enhanced with a financial wellbeing program. We work with many employers who offer both the 401(k) benefit and the opportunity for their employees to learn and participate in well-being programs.

 

Well-being Programs

These programs go by different names in the marketplace, such as financial wellness or financial literacy, but they all have the same goal – educate and provide resources to employees based on their individual situation and concerns. Scenarios can obviously change over the years (look at 2020 with COVID-19), but the programs adjust accordingly and can help reduce employees’ financial and emotional stress.

Well-being programs cover topics such as budgeting, saving for retirement and retirement account types. A recent study by Alight Solutions shows that over the last few years, employers are increasingly seeing the importance of well-being programs².

56% of employers believe the importance of financial wellbeing programs has increased at their organization over the last two years. Nobody says the focus has decreased.

Ultimately, you can help strengthen your company’s and employees’ financial health and security – by starting or continuing a retirement plan and providing a well-being program administered through an education platform. Midland Retirement Plan Services strives to simplify the process with an all-in pricing model to remove any confusion surrounding costs. We also focus on the overall service experience and help provide guidance and answers for all parties involved – from the employer to the employee. Contact us to learn more.

 

1 Employee Financial Wellbeing: The impact of employee financial health at work. Willis Towers Watson, December 27, 2018, Employee financial wellbeing: The impact of employee financial health at work - Willis Towers Watson, Accessed March 15, 2021

2 Hot Topics in Retirement and Financial Wellbeing 2021. Alight.com, 2021 Hot Topics in Retirement and Financial Wellbeing | Alight, Accessed March 15, 2021