Wealth advisors have new prospecting tool in SECURE 2.0

The legislation provides new credits and incentives that cover a significant portion of the cost of setting up a retirement plan, while also providing access to new 401(k) solutions.

Small businesses straining to recruit talent and wealth advisors seeking to expand their businesses both have a new tool: the recently passed SECURE 2.0 Act.

According to Goldman Sachs’ recent 10,000 Small Businesses Survey, 59% of small business owners are currently hiring, and among those looking to bring on new talent, 82% are having a hard time finding qualified candidates to fill open positions.

Couple this with the fact that only 53% of small businesses with under 100 employees offer a retirement plan and it becomes clear that Secure 2.0 offers a timely opportunity for wealth advisors to fortify relationships with small business owners and cement relationships with prospects.

“Historically, business owners have held off on offering retirement plans for a variety of reasons, such as they believe they’re too small or that the costs involved would be too high,” said Mike Moran, senior pension strategist at Goldman Sachs Asset Management. “Notably, SECURE Act 2.0 provides new credits and incentives that cover a significant amount of the cost of setting up a plan, while also providing access to new 401k solutions.”

Moran highlights four key provisions of SECURE Act 2.0 that advisors should be prepared to discuss in depth with entrepreneur clients and prospects.

The first is the enhanced start-up credit for small businesses that’s intended to cover administrative costs and employer contribution costs. A single credit will cover 100% of administrative costs, capped at $5,000 for employers with up to 50 employees, according to SECURE Act 2.0. A second credit will cover employer contributions up to $1,000 per employee based on a percentage of the employer contribution.

Another provision wealth advisors should explore is the new tax credits for PEPs and MEPs. Small businesses that join a pooled employer plan or multiple employer plan are eligible for start-up credits under SECURE Act 2.0. These pooled plans generally impose less administrative responsibility on employers. Moreover, the credits further lower employer administration and contribution costs.

The act’s first year retroactive contributions for sole proprietors will also benefit those interested in making an additional elective tax deferral.

Finally, Moran said the Starter 401k plans benefits will be a major boon for small business owners and the wealth advisors courting them. Effective in 2024, a Starter 401k will be available to companies that don’t offer a plan. The Starter 401k will have a more limited plan design than a traditional 401k plan, which helps reduce compliance testing, generally requiring that all employees be automatically enrolled at a minimum 3% deferral rate. Employees will be able to contribute up to $6,000 and an additional $1,000 if age 50 or older.

“With the passing of SECURE 2.0, small business owners have new financial incentives and face fewer administrative challenges when it comes to offering their employees a retirement plan. This could help entrepreneurs compete for the best talent, while bolstering retirement savings for their employees and themselves — a win-win-win solution,” Moran said.

CERULLI’S STANCE

The latest Cerulli Edge U.S. Retirement report also emphasized the benefits of SECURE 2.0 for small-business employers, entrepreneurs and enterprising wealth advisors.

Aside from the items noted by Moran, the Cerulli report cites the act’s benefits for individuals making student loan payments.

Employers will be able to provide matching contributions to such workers’ 401(k) accounts, benefiting those who may feel burdened by having to choose between saving for retirement and paying down their student loans.

Cerulli said student loan debt is the top source of financial stress for 17% of participants in their 20s and for 12% of participants in their 30s. As a result, more than half of participants under age 40 contribute 6% or less of their income to their 401(k)s.

“The cumulative impact of student loan obligations on retirement savings for those saddled with debt can be significant,” Cerulli senior analyst David Kennedy said in a statement. “Record keepers that opt to offer this feature should illustrate to their plan sponsor clients how matching contributions for student loan repayments can potentially enhance the financial well-being of their employees.”

Plan sponsors will also be able to offer emergency savings accounts to employees and make matching contributions under the new provisions of SECURE 2.0, a feature that Kennedy says could make it easier for companies “to help workers better plan for unforeseen events.”

Cerulli says only 18% of record keepers either offer an emergency savings sidecar account themselves or partner with a third party to provide one. However, as SECURE 2.0 is rolled out, Cerulli anticipates more record keepers will make this functionality available on their platforms.