Offering a Simple-IRA & Debating a 401K? SECURE 2.0 Changes the Calculation

When companies are starting out, frequently any retirement plan will do. The smaller the company, the more likely they are to pursue the path of least resistance. As companies grow, sometimes the plan they started with no longer fits their needs. In a hyper-competitive labor market, the 401K plan is typically a table stakes benefit. If you don't have one, the ideal candidate will likely keep looking.

With the passing of SECURE 2.0, companies that offer simple-IRA plans have another reason to reevaluate whether now is a good time to upgrade. This legislation creates tax credits for employer contributions and automatic enrollment features. The one credit you forgo since you already offered a plan is the start-up credits. The employer contribution credits are available in year two of the establishment of the 401K plan so the employer loses one year of credits since they had already offered a Simple-IRA.

So not only will employees get the benefit of higher contributions to the plan, the employer will get the added benefit of matching flexibility, vesting and tax credits in the first five years. For employers that were at the cutoff point trying to determine whether a 401K plan was right (and if it was the right time), there is no question the evaluation of these types of plans has changed.