Hartford Business Journal

HartfordBusiness.com | March 22, 2021 | Hartford Business Journal 19 ON THE RECORD: Q&A By Greg Bordonaro gbordonaro@hartfordbusiness.com T here has been a dizzying array of major legislative programs passed by Congress over the last few years that have impacted small and midsize businesses, particularly in response to the coronavirus pandemic. But one that seems to have gone under the radar — perhaps because it was passed pre-pandemic in Dec. 2019, and went into effect Jan. 1, 2020 — is the Setting Every Community Up for Retirement Enhancement, or SECURE Act, which tries to help more American workers save for retirement. The Act makes all sorts of changes to retirement plans — including increasing the required minimum distribution age to 72 from 70.5; repealing the maximum age for traditional IRA contributions; and allowing parents to withdraw up to $5,000 from retirement accounts, penalty-free, within a year of the birth or adoption of a child for qualified expenses — but also tries to incentivize small employers to offer retirement benefits to their workers. Stacy Farber, a principal at UHY LLP in Farmington who chairs the accounting and consulting firm's employee benefit plan committee, said she's been bringing up the relatively new law with many of her clients. Employee benefits have always been a big issue for employers, and many companies use such perks to try to attract top talent. Small businesses face the increased pressures of competing with larger companies with bigger budgets. Health insurance often gets a lot of the attention in terms of benefits demanded by workers, but retirement programs are increasingly in demand and can serve as a key differentiator, Farber said. She recently participated in a Q&A with Hartford Business Journal to discuss the SECURE Act and trends she is seeing with employer retirement programs. Q: First, let's start off with the SECURE Act. What are the biggest benefits to small employers? Small business owners will find it easier to join with other businesses to offer defined contribution retirement plans. Otherwise known as MEPs (multiple employer plans), they allow for unrelated employers to participate in joint retirement plans. Small business owners can also receive a tax credit for starting a retirement plan, up to $5,000 (minimum $500). This is based on the rate of $250 per non-highly compensated employees eligible to participate. This feature applies to companies with up to 100 employees over a three-year period beginning after Dec. 31, 2019, and applies to simplified employee pension (SEP), 401(k) and profit-sharing plans. If the retirement plan includes an automatic enrollment provision, the company may receive an additional $500 credit. Q: The SECURE Act requires companies to allow part- time employees who work at least 500 hours for three consecutive years to participate in 401(k) plans. How are employers responding to this requirement? Considering that part of the law just went into effect as of Jan. 1 2021, most of our conversations with clients are focusing on general awareness and the resulting changes. Employers may view it as an additional burden and cost, but others may already allow part-time employees to participate in the 401(k) plan. The biggest issue is that employers will have to closely track their workers' hours over several years to see if they qualify. It requires additional administrative work. We anticipate that companies will amend their plans to alleviate the tracking of it all. Q: What are the biggest challenges for small businesses in terms of starting up a 401(k) plan? The administrative burden is likely the biggest roadblock. Many small businesses have bookkeepers or other employees tasked with managing employee benefits that may not be equipped in terms of know-how and resources to handle the administration of a 401(k) plan as it relates to the necessary compliance measures. Q: Has the pandemic forced employers to make changes to their 401(k) plans? We haven't conducted our audits yet of 2020 plan years, so it's a difficult question to answer with facts about what we have seen. Our best guess is that when we conduct those audits, we will see companies that had to suspend their match or other employer contributions. I don't anticipate companies making a lot of changes to their 401(k) plans, other than suspending contributions. Most of the small businesses we work with do offer matching contributions to try to compete with larger companies with better benefits. Unfortunately, what happens most often during a downturn in the economy, is that those matching contributions become suspended. Q: Finding top talent is a major issue for employers in all industries, and employee benefits are seen as a key differentiator. How important is a retirement plan in terms of what employees are looking for as opposed to health and other types of benefits? We advise clients that a retirement plan is often just as important as offering health benefits. Considering the statistics for balances in retirement plans, it's scary that based on modeling most people will not have enough money saved to actually retire and live off of retirement benefits. With more companies eliminating pensions and other post-retirement benefits, it is critical that employees prioritize saving for retirement and employers consider how they can help their employees do so via comprehensive benefit offerings. Q: Do you think the SECURE Act will prompt more small employers to offer 401(k) plans? We are still in the process of raising awareness among our clients and don't yet see a consensus regarding whether more small employers will offer 401(k) plans. We are likely to see some employers jumping on the multiple employer plans to try to keep employees. But it's too early to tell if this will be a large-scale trend. Small employers have new federal incentives to offer worker retirement benefits Stacy Farber is a principal at accounting firm UHY LLP. PHOTO | CONTRIBUTED

• Cover