36 NOVEMBER / DECEMBER 2023 FINANCIAL MANAGEMENT The SECURE 2.0 Act is transforming the retirement plan landscape. For banks that have investment programs or provide wealth management services to clients, this is the perfect opportunity to collaborate with your financial advisors on a growth strategy centered around small business owners. With more than 33 million small businesses in the U.S., small business owners are the center of many of our local community institutions. This legislation opens the door to deeper, more valuable conversations with these clients, helping them provide an upgraded retirement plan experience to their employees and avoid possible penalties. Signed into law late last year, SECURE 2.0 contains 92 new provisions to address the country’s growing retirement savings gap. Out of more than 133 million Americans working in the private sector, nearly 57 million work for businesses that don’t offer retirement plans, according to an AARP study. SECURE 2.0 introduces incentives that address the most common reason why small businesses don’t offer retirement plans: cost. SECURE 2.0 introduces enhanced tax credits to help employers offset the costs associated with establishing and operating a plan. Employers with 50 or fewer employees can claim a start-up credit of up to the lesser of $250 per non-highly compensated employee (NHCE) or $5,000 per year, applied for each of the first three years of the plan. To further ease the financial burden of offering a plan, an additional tax credit is available to help offset the cost associated with employer contributions made on behalf of eligible NHCEs whose FICA wages are $100,000 or less (indexed). This credit is equal to 100% of employer contributions, not to exceed $1,000 per NHCE, for two years, then phased out by 25% each of the next three years. Financial Institutions, Investing Clients to Benefit from Secure 2.0 Act Provisions The credits are available to employers that are starting a new retirement plan, or to employers joining existing multiple employer plans (MEPs) or pooled employer plans (PEPs). PEPs, a type of 401(k) plan created under the original SECURE Act of 2019, are an especially attractive option to many business owners who want to offer a plan but aren’t eager to assume all the fiduciary liability that goes along with it. A PEP allows multiple unrelated businesses to pool their purchasing power for better benefits, service and pricing while enjoying less in-house administrative overhead. By helping small business owners establish new retirement plans or become adopting employers of a PEP, banks can increase loyalty and trust with those clients and gain long-term access to many new households – in the form of each plan’s employees. According to research from the Bank Insurance & Securities Association, households that have an established investment relationship with their primary bank carry account balances that are 3.2 times the balances of other account holders. Financial institutions and their advisors should also be ready to review existing retirement plans with business owners to determine which of the 92 provisions of the SECURE 2.0 Act require action and which optional provisions should be considered. Some provisions, including those around emergency savings and student loan repayment, create opportunities for deeper planning discussions and can strengthen client relationships. Don’t miss this unique opportunity to lead the charge with small business owners and coordinate a marketing strategy to make sure they are taking advantage of this new law. Remember, someone will approach your client. Make sure it’s you! HB Nicole Hinman Senior Director – Client Solutions Cambridge Investment Research Inc. Nicole.Hinman@ CIR2.com Cambridge Investment Research is an associate member of the Indiana Bankers Association.
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