SECURE ACT: New Plan Tax Credits
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Under the SECURE Act, effective in 2020, an extra benefit is available for employers implementing a new retirement plan: a tax credit of up to $5,000 per year for the first 3 years of the plan. The determination of the credit is a three-step process as demonstrated in the following example, and as explained in more detail thereafter.
|Example (an Excel version of this worksheet available upon request)|
|Step 1: Determine Actual Credit Available Prior to Limitations|
|1. Total Eligible Expenses for the year||$ 3,000*|
|2. Multiply Line 1 by 50%||$ 1,500|
|Step 2: Determine the Maximum Credit Allowable|
|3. Number of NHCE’s Covered by the Plan||5|
|4. Multiply Line 3 by $250||$ 1,250|
|5. Greater of Line 4 or $500||$ 1,250|
|Step 3: Apply the Maximum Credit Limitation|
|6. Lesser of Line 2 or Line 5||$ 1,250|
|Line 6 represents the applicable credit.|
|* If a credit is claimed against these expenses, the expenses may not also be deducted.|
Step 1 – Determine the Actual Credit Available Prior To Limitations: The tax credit available, prior to the limitations described below, is 50% of eligible plan expenses paid by the employer (e.g. PASI’s annual administration and initial set-up fees).
Step 2 – Determine the Maximum Credit Allowable: The maximum tax credit available is equal to $250 multiplied by the number of Non-Highly Compensated Employees (NHCE’s) covered by the Plan. Plans covering 20 or more NHCE’s will be eligible for the maximum credit of $5,000 (20 NHCE’s @ $250 = $5,000). Generally, an NHCE is a non-owner employee whose compensation is less than $130,000 a year (subject to annual cost of living increases). Regardless, the Maximum Credit Allowable will never be less than $500.
Step 3 – Apply the Maximum Credit Limitation: If 50% of expenses (as described in Step 1) exceeds the Maximum Credit Allowable (as described in Step 2) then the credit is reduced to the Maximum Credit Allowable.
Important Note: This document is for informational purposes only and is not intended to be tax advice. The individual responsible for preparing the employer’s corporate returns should be consulted regarding the availability and advisability of this credit.
Please contact PASI to discuss your options at (860) 284-6880 or email@example.com.
IMPORTANT COVID 19 Considerations for your Retirement Plan
First and foremost, we hope you, your families, and your employees and their families are safe and well. The team at PASI is making the best of the situation. Our staff are working remotely, and as such, we expect minimal interruptions to our business.
Although we are regularly checking our voicemails, coordinating scheduled calls through email exchanges is probably the most efficient means of communication.
We understand that you are extremely busy in these unprecedented times reacting to the rapidly changing business climate. This email is to alert you to significant topics surrounding retirement plans. If you think any of these topics are relevant to your business/organization, please contact your Plan Consultant. Addressing your concerns in these difficult times is absolutely our top priority.
Discontinuing Employer Contributions
It is absolutely imperative that you let us know of your intentions to discontinue any Employer Contributions to the Plan. This is particularly true in the following situations:
- Your Plan is a Safe Harbor 401(k), a SIMPLE IRA or a SIMPLE 401(k).
- Your Plan is a Defined Benefit or Cash Balance Plan.
- Contributions to these Plans cannot be discontinued during a Plan Year after Participants have been credited with 1,000 hours of service so prompt attention is required.
- This does not apply if your Defined Benefit / Cash Balance Plan is already “frozen.”
- If you have concerns about your ability to fund benefits that have already accrued (for example for the previous plan year) please let us know as soon as possible.
If you have already implemented Workforce Reductions in the form of furloughs or layoffs, please let us know as soon as possible so we can discuss the following considerations with you in greater detail.
- If based on the nature of the reduction, the individuals are no longer considered employees, they will be eligible to close their retirement plan accounts. In addition, any outstanding loans that they have will ultimately be treated as taxable distributions.
- In general, if more than 20% of your workforce is terminated, these affected employees (and in fact employees who terminated for other reasons) may become 100% vested in any employer contributions.
- If based on the nature of the reduction the employees are still considered active (e.g., a furlough due to a temporary shut-down) Participants will not be able to access their retirement funds unless they are otherwise eligible for an in-service distribution (e.g. hardships, age 59½ ).
- Participants in this situation who have Participant loans can suspend their payments for up to a year without adverse tax consequences.
Fast Approaching Deadlines
PASI is fully operational from home offices and able to assist with all deadlines. If your inability to meet any deadlines is directly related to this crisis, it is possible (perhaps likely) that no penalties would be levied. Although we do anticipate formalized relief with respect to most (if not all) upcoming deadlines, because the Federal government is currently occupied with other more pressing matters, the relief may not be provided until after the deadlines have passed or perhaps at the last minute. Examples include, but are not limited to, the following:
- Age 70½ required minimum distributions are due no later than April 1, 2020, with respect to the first such required distribution.
- For Plan’s that have a June 30, 2019 Plan Year End, the extended deadline for Form 5500’s is April 15, 2020.
- 403(b) Plans are required to be restated onto a pre-approved Plan document by March 31, 2020.
The due dates for personal 1040 tax returns and for “C-Corp” 1120 returns have already been extended from April 15th until July 15, 2020. This extension also applies to the payment of any taxes due with those returns and/or extensions.
There are numerous proposals being considered by the IRS, DOL and Congress. We will keep you apprised of these developments. Relief is expected in several areas, including:
- Addressing employer’s inability to fund current employer contribution obligations;
- Participant’s ability to access retirement funds in order to supplement lost wages.
- Relief with respect to upcoming deadlines (as described above).
How PASI is Responding to COVID-19
As we continue to follow updates and developments regarding COVID-19, we wanted to take this time to share with you the actions we are taking to protect the health and wellbeing of our staff, their families, our partners, and our community. We also want to reassure you that we will continue to provide the high standard of service you have come to expect as we all navigate these unprecedented times.
PASI, LLC has enacted a Pandemic Plan and we are continually updating our approach as new information becomes available.
The following are some of the actions we have put into place:
Utilize our technical infrastructure and network capacity to support geographical work-from-home scenarios (for all team members).
Implementing partial work from home strategies. Please note that we have robust security measures in place to protect client data and are in continuous communication with our IT company.
Implementing a staggered schedule approach in our offices to follow social distancing recommendations by the CDC.
Requiring sick team members to stay home.
Flexible policies in place according to the needs of each team member on our staff.
Performing deep cleaning in our offices to aid in preventing the spread of COVID-19.
Distributing hand sanitizer and other cleaning products throughout our office to each employee.
Prohibiting external meetings until further notice.
Prohibiting visitors in our office until further notice.
Utilizing video and audio conferencing both internally and externally.
Communicating up-to-date information with our staff including guidance to maintain safety and health.
We are committed to keeping you informed, and we will provide updates as needed. Should you have any questions, please feel free to reach out to us.
Most importantly, please stay safe.
November 2019 News
2020 Plan Limits are here! Print a copy for your office today!