New Micro-Plans Will Receive Expanded Tax Credit if Bill Passes

Representatives Claudia Tenney, R-New York, and Dan Kildee, D-Michigan, introduced the Retirement Investment in Small Employers [RISE] Act on Monday. The bill would expand plan startup tax credits available to small businesses with fewer than 10 employees.

When it was passed in December 2022, the SECURE 2.0 Act of 2022 expanded retirement plan startup credits to encourage more businesses to provide them. SECURE 2.0 increased the amount of startup and administrative costs that could be counted toward the credit to 100% from 50% for employers with 50 or fewer employees during the first three years of the plan up to an annual maximum of $5,000.

However, SECURE 2.0 left in place a tax credit structure which limited the tax credit amount to $250 per employee, with a minimum total of $500. Since SECURE 2.0 raised the maximum amount that could be credited to $5,000, the smallest of businesses would not be able to reach the full benefit of the tax break, or even half of it.

The RISE Act would increase the minimum credit to $2,500 for businesses with fewer than 10 employees to better compensate businesses for the costs of starting and operating a plan. A small plan with four employees, for example, would only receive a credit of $1,000 under current law ($250 per employee) but would receive $2,500 under the RISE Act, since that would become the minimum credit for starting a new plan.

Michael Majors, the vice president of human resource solutions at payroll and small plan provider Paychex Inc., says the bill would “greatly expand the number of businesses that have a plan” and that “many of these businesses got no advantage from SECURE 2.0.”

Majors explains that a main obstacle to plan formation for small businesses are startup costs, and this bill would allow the smallest of businesses to benefit more from startup tax credits. He says that the retirement “industry can help a lot once the bill is passed” in spreading the word on the updated tax credits.

Paychex, the country’s largest recordkeeper of plans with less than $10 million in assets, according to PLANSPONSOR’s 2023 recordkeeping survey, strongly endorsed the bill in a statement: “Paychex is proud to endorse the RISE Act to expand tax credits for micro-sized businesses, which provides a clearer pathway for more of the smallest businesses to offer retirement plans and helps to solve the country’s retirement crisis.”

The bill, like all other legislation in the House of Representatives, cannot proceed until a speaker is elected. However, Majors says he expects a technical corrections bill for SECURE 2.0 to be taken up in 2024 with the RISE Act to be included.