Retirement security and small business

Large companies have provided retirement annuities to their employees for decades, if only in certain classes or circumstances. This is doable for big corporations because they have the funds and resources to run such programs. The vast majority of smaller businesses don't have that luxury.

Small businesses contribute to almost half of all economic activity and are responsible for over 60% of America's job creation. In spite of this, most are still unable to provide benefits to their employees beyond pay checks. In fact, according to MarketWatch, almost three quarters of small businesses don't have a retirement plan for their employees.

This means that over 50 million workers employed by small businesses don't have access to employer-provided retirement plans or benefits. The average household savings account comes to a paltry $2,500, barely enough to cover a few months' payments at a retirement home or assisted living facility.

However, this might change very soon with the government's support. Let's take a look:

SECURE 2.0 and the Consolidated Appropriations Act

As explained by JD Supra, in 2022, the U.S. government enacted the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to assist small business employees improve their retirement security. It's part of the larger Consolidated Appropriations Act, a piece of legislation designed to offer tax credits and other incentives to small businesses to encourage them to provide retirement annuities to employees, according to The Philadelphia Inquirer.

New employment retirement plan laws are expected to come into effect in 2025.

As part of this new law, companies will be required to automatically enroll all employees in any new 401(k) and 403(b) plans the businesses set up, although workers can choose to opt-out. Furthermore, the Act expands legal protections for part-time employees. By reducing the required years of service for retirement plan eligibility from three years to two, employees who work fewer hours than their permanent, full time counterparts can become part of the plan more quickly. Additionally, new tax credits of up to 100% for small businesses with fewer than 50 employees mean that small to medium enterprises (SMEs) will have the funds necessary to cover retirement annuities.

While some small business owners may see these new requirements as an unwelcome burden, many of their stipulations aren't required or legally mandated and act only as encouragement. However, reluctant SME owners should remember that offering retirement benefits can work in their favor, too. As more than half of working adults express concern that they won't be able to afford retirement, companies who offer annuities become increasingly attractive to job hunters — a crucial element for success during the current labor shortage crisis we're facing.

If you're a small business owner who may require some assistance once these laws come into effect,  reach out to the Law Offices of Donald W. Hudspeth, P.C.

Categorised in: Arizona LLCs, Starting a Business in Arizona

This post was written by