ERISA and the SECURE Act Explained: Build a Better Retirement Plan
Offering a robust retirement plan is one of the best ways to support your employees and secure their long-term financial well-being. However, understanding the regulations behind these plans is essential to avoid compliance issues and maximize their benefits. Two critical pieces of legislation—the Employee Retirement Income Security Act (ERISA) and the Setting Every Community Up for Retirement Enhancement (SECURE) Act—provide the framework for responsible and impactful retirement plans. At Maxus Plan Solutions, we help business owners navigate these regulations to build successful retirement plans that benefit both their companies and their teams.
Understanding ERISA: The Backbone of Retirement Plan Protection
Enacted in 1974, ERISA (Employee Retirement Income Security Act) sets minimum standards for retirement plans in private industry, designed to protect employee retirement savings and ensure plan integrity. Here are some key components business owners need to know:
- Fiduciary Responsibility: Under ERISA, plan sponsors and fiduciaries are responsible for managing plan assets solely in the interest of participants. They must act prudently, avoid conflicts of interest, and diversify investments to minimize risk.
- Plan Funding and Reporting Requirements: ERISA establishes requirements for plan funding and reporting to ensure that plans are adequately funded and transparent. Employers must provide clear, regular updates to participants on their plan benefits, account balances, and investment options.
- Vesting Schedules: ERISA mandates specific vesting rules, which determine the timeframe for employees to gain ownership of employer-contributed retirement funds. Business owners must follow either a “cliff” or “graded” vesting schedule, giving employees ownership rights based on their years of service
- ERISA Compliance Audits: Employers with 100 or more participants must undergo an annual plan audit. Failure to comply with ERISA standards can result in penalties and legal issues. Maxus Plan Solutions helps businesses with ERISA compliance, helping them avoid these costly pitfalls.
The SECURE Act: Expanding Retirement Opportunities for Employees and Employers
- Expanded Eligibility for Part-Time Employees: The SECURE Act requires that long-term, part-time employees be eligible for retirement plans if they’ve completed at least 500 hours of service per year for three consecutive years. This change allows more employees, especially in high-turnover industries, to access retirement benefits.
- Increase in Required Minimum Distribution (RMD) Age: The RMD age—the age by which employees must start withdrawing from their retirement accounts—has been raised from 70½ to 72, and later to 73 under SECURE 2.0. This extension allows employees to grow their retirement savings longer, providing more security for later in life.
- Automatic Enrollment and Auto-Escalation: The SECURE Act encourages automatic enrollment and auto-escalation features in 401(k) plans, making it easier for employees to participate and increase their contributions over time. Maxus Plan Solutions can help your business implement these features to boost employee participation and savings.
- Tax Credits for Small Businesses: The SECURE Act offers tax incentives to small businesses that start retirement plans, including up to $5,000 annually for three years to cover plan setup costs. It also offers a $500 credit for implementing auto-enrollment, making retirement plans more affordable for small businesses.
- Penalty-Free Withdrawals for Certain Life Events: SECURE 2.0 includes provisions for penalty-free withdrawals in cases of birth, adoption, or specific emergencies, adding flexibility for employees facing financial hardships.
How ERISA and the SECURE Act Work Together to Support Retirement Goals
While ERISA ensures that retirement plans are managed ethically and responsibly, the SECURE Act introduces flexibility and accessibility. Together, they create a balanced approach, offering structure, protection, and support for both employers and employees.
- Building Trust: ERISA’s fiduciary guidelines build trust by ensuring employees know their retirement funds are safe. The SECURE Act enhances this by allowing businesses to offer valuable, accessible benefits.
- Supporting Financial Well-Being: Together, ERISA and the SECURE Act encourage consistent savings and help employees feel confident in their financial futures. Maxus Plan Solutions can guide you in aligning with both regulations to strengthen employee financial health and retain top talent.
Maxus Plan Solutions: Your Partner in Compliance and Growth
Navigating ERISA and the SECURE Act can seem complex, but Maxus Plan Solutions is here to help. Our team works closely with business owners to ensure their retirement plans meet regulatory standards while maximizing employee benefits and engagement. With expertise in plan design, compliance, and ongoing administration, Maxus Plan Solutions provides end-to-end support, empowering you to offer a competitive, compliant retirement plan.
Key Takeaways for Business Owners
- Compliance: Understanding and adhering to ERISA requirements minimizes legal risks and builds trust with employees. Maxus Plan Solutions offers compliance support, so you don’t have to navigate these regulations alone.
- Accessibility: The SECURE Act introduces measures to make retirement plans accessible to more employees, helping you attract and retain talent. We can help you implement features like automatic enrollment, auto-escalation, and eligibility for part-time employees.
- Flexibility and Support: ERISA and the SECURE Act provide a balance of regulation and flexibility, allowing your business to offer meaningful retirement benefits. Our expertise ensures you can integrate these features smoothly.
Final thoughts
Providing a secure, well-managed retirement plan is one of the best investments you can make in your team’s future. By understanding ERISA and the SECURE Act, you can confidently offer retirement plans that attract top talent, improve retention, and enhance employee satisfaction. Maxus Plan Solutions guide you in designing a plan that meets these standards and supports the long-term growth of your business.