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Legislative Highlights - Fall 2024 Edition

New Bill Introduced to Increase the Small Business Startup 401(k) Tax Credit

This proposed legislation may make it easier for small businesses with nine or fewer employees to fund the administrative costs of starting a retirement plan. Sen. Maggie Hassan (D-N.H.), who is a member of the Senate Finance Committee, and Sen. Ted Budd (R-N.C.), who is a member of the Senate Health, Education, Labor and Pensions (HELP) Committee, introduced the Retirement Investment in Small Employers Act on May 23, 2024.

This proposed bill would increase the minimum startup tax credit for businesses who have between one and nine employees from $500 to $2,500. Those who own small businesses have voiced their concerns that any amount under $2,500 may not be enough to cover the initial administrative costs of starting up a retirement plan. 

SECURE Act 2.0 (Section 102) enhanced the plan startup tax credits for smaller businesses by expanding the share of administrative costs. The start-up credit would be increased from 50% to 100% for employers with up to 50 employees with an annual cap of $5,000 per year.

While this is a step in the right direction, SECURE 2.0 did not amend the tax credit structure found in the original SECURE Act of 2019, which limited the startup credit to $250 per employee, with a minimum of $500. The proposed legislation is looking to remedy this by keeping the $250 per employee provision in place but increasing the minimum benefit to $2,500 regardless of the number of employees. This way, employers that have between one and nine employees would receive an added incentive to offer a retirement plan.

Senator Hassan stated “Our smallest businesses need to be able to compete with larger ones, and part of that is helping them offer good retirement plans for their employees. I urge my colleagues to support this commonsense, bipartisan legislation that will help more small businesses and their employees thrive.”

As currently drafted, the amendment made by the legislation would apply to taxable years beginning after December 31, 2026. If you have any questions regarding this proposed legislation, please contact your local Spectrum representative.

New Student Debt Reduction Program to Launch

Student debt has reached record levels, preventing many employees from saving for retirement. At the end of 2023, over 40 million Americans hold federal student loan debt with a total national balance of over $1.6 trillion.

The Saving on a Valuable Education (SAVE) Plan, which launched in March of 2024, is the newest income-driven repayment (IDR) plan from the U.S. Department of Education. The SAVE Plan calculates monthly payments based on the borrower’s income and family size rather than their loan balance. What sets this plan apart from other IDR plans is the balance won’t grow due to interest if the borrower makes their monthly payments. Borrowers enrolled in the SAVE Plan are eligible for total loan forgiveness if they have made at least 10 years of monthly payments and originally took out $12,000 or less.

The SAVE Plan has a helpful benefit in that if a full monthly payment is made but is not enough to cover the accrued monthly interest, the government will cover the rest of the interest that accrued that month. This feature prevents balances from growing due to unpaid interest.

Additional benefits of SAVE will go into effect in July 2024. These additional benefits will likely further reduce payments and make it easier to manage repayment. We will continue to keep you posted on other legislative developments.