By David Reich

There’s a much-discussed retirement savings crisis plaguing our society accompanied by a lot of finger-pointing at who or what’s the cause. Wherever you land, it’s hard to argue this: As a country, we need to find ways to incentivize all employers to make retirement funding a priority at their firms.

There’s promise for change on the horizon. The bipartisan SECURE Act (for Setting Every Community Up for Retirement Enhancement) addresses many of regulatory shortfalls that hamper retirement savings progress. Seeing this through will be the issue.

The Act’s focus is largely on small businesses – organizations with fewer than 100 employees that are less likely to have retirement plans. It impacts a significant portion of Americans who are without a company plan.

Start with the big picture. A new Federal Reserve report1 shows a substantial number of Americans have no retirement savings: 42% of those aged 18 to 29 and 26% of those 30 to 44. And it stays pretty bleak for older age groups, too, with 17% of the 45 to 59 age group and 13% of those 60-plus without a financial cushion.

Those employed by the 10,000 largest companies in the U.S. are pretty much covered. These employers have the wherewithal and the incentives to offer retirement plans, typically 401(k)s, experiencing 98% coverage for the 60% of the nation’s workers they employ.

It’s the remaining 40% of the nation’s workers employed by organizations with 100 or fewer employees who have the largest 401(k) coverage gap. The SECURE Act takes a common-sense and comparatively pain-free approach in making it easier for small businesses to help their people save for retirement. Among the most important features:

  • Tax credit cap increase. When businesses with fewer than 100 employees adopt a new retirement saving plan, the tax credit would move from $500 to $5,000. Adopting automatic enrollment, which boosts plan participation, would add another $500 credit.
  • New flexibility in rules. Small business employers would benefit by relaxed rules over such things as their ability to switch to a Safe Harbor 401(k) during or after a plan year. This helps address common small business concerns over the costs and administrative complexities of 401(k)s versus the need to meet the retirement readiness imperative in a 401(k) world.
  • The “pooled plan” solution. Allowing small employers to band together in open 401(k) multiple-employer plans (MEPs) would be an important step forward, reducing costs and administrative burdens that small employers are often challenged to take on.
  • Opening eligibility to long-time part-timers. Part-time employees – restaurant workers and retail employees, for example – are among those who typically don’t have access to an employer’s retirement plan, one of the changes under the SECURE Act.

Overall, the amount people are saving is starting to ratchet up, averaging 7.6% in 20182 after averaging 6.7% in 2016 and 20173. But for people to be better positioned for retirement, it really needs to be 10% at a minimum and closer to 15%. Getting people there is the issue. Things in the SECURE Act will help in a big way.

HUB International’s team of retirement plan specialists provide ongoing guidance on your plan’s setup and management to ensure it meets regulatory compliance guidelines and the interests of your employees.

1https://www.federalreserve.gov/publications/files/2018-report-economic-well-being-us-households-201905.pdf
2https://www.statista.com/statistics/246268/personal-savings-rate-in-the-united-states-by-month/
3https://www.bloomberg.com/news/articles/2018-07-27/americans-have-been-saving-much-more-than-thought-new-data-show