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Author: Dylan Telerski

Dylan is a marketing specialist at Ubiquity Retirement and Savings. A passionate champion for small business, she can be found demystifying the financial industry, advocating for the underdog, and making playlists you did not ask for.

Big changes are potentially afoot for retirement plans across America.

The proposed Securing a Strong Retirement Act of 2021, or SECURE Act 2.0, unanimously passed in the House Ways and Means Committee on May 5th, 2021. Next, House members will vote and send the bill onto the Senate, likely after its August recess. The Senate has its own provisions that will need reconciling before President Biden signs the final draft into law. Typically, retirement measures piggyback onto larger tax reform, budget, or end-of-year spending bills. Given the wide bipartisan support for a retirement plan bill, it’s likely some version of SECURE Act 2021 will pass this year.

What’s In SECURE Act 2.0?

Among the most impactful changes:

  • Auto Enrollment

    Employers starting new plans would be required to auto-enroll eligible workers at a savings rate of 3% of their salary, which would increase by 1% annually until their rate reached 10%. Employees would have the ability to opt-out or save even more if they desired. Old plans would be grandfathered in, and a small business 401(k) with fewer than 10 participants or startups with less than three years in business would be exempt.

  • Increased or Negated Required Minimum Distributions

    SECURE 2.0 would increase the RMD age from 72 to 73 in 2022, 74 in 2029, and 75 in 2032. Those with plans worth less than $100,000 would not be required to take out any RMD.

  • Increased Catchup Contributions

    Americans 50 years of age and older with a 401(k) or 403(b) can set aside an additional $6,500 above the annual limit as a “catchup contribution.” Those with an IRA can contribute $1,000 more. SECURE Act 2.0 would allow 401(k) and 403(b) participants to add an additional $10,000 per year at 62, 63, and 64.

  • Student Loan Matches

    For the first time, employers can count the amount of money used to pay off a student loan as a “retirement savings contribution,” eligible for the company match.

  • Roth Expansion

    Under existing law, SEP and SIMPLE plan participants cannot have a designated Roth IRA account. However, SECURE Act 2.0 allows the opportunity to make after-tax Roth contributions within the plan. All catch-up contributions would also go into a Roth account, and employers may opt to put their matching contributions into Roth, rather than pre-tax, accounts.

You can read about more of the proposed changes in greater detail on our SECURE Act 2.0 page.

How Do the House and Senate Versions Differ?

The Senate’s version of SECURE Act 2.0, titled the Retirement Security and Savings Act of 2021, contains many of the same proposals as the House bill, with a few noteworthy differences:

  • The taxpayer Saver’s Credit will be fully refundable if paid to a Roth account.
  • Spouse beneficiaries can treat inherited account balances as their own.
  • Non-spouse beneficiaries can make an indirect rollover to an inherited IRA.
  • Employer plans will be permitted to accept Roth IRA rollovers.
  • Catchup contribution increases apply to all participants 60 years of age and older (rather than just 62-64).
  • The Required Minimum Distribution requirement would be eliminated for those with less than $100,000.
  • A new tax credit for employers offering auto-enroll Safe Harbor 401(k)s with a 6% default deferral rate.

Critics Suggest Future Improvements to SECURE Act 2021

While these changes have met with broad support to expand access to retirement savings, this is unlikely to be the end of the discussion. Critics say there are a few key places where SECURE Act 2.0 comes up short.

  • Only half of small businesses offer retirement plans, which puts financial security out of reach for much of the workforce.
  • The bill doesn’t address job-hoppers who may experience long gaps of unemployment where they are unable to save anything for retirement.
  • Young workers who change jobs often cash out their retirements, pay the 10% penalty, and lose out on years of gains and compounding returns.

Universal coverage – much like the auto-IRA plans we’re seeing in New York and California – is considered by some to be a more comprehensive bridge to greater savings that can be implemented on a national level.

Ubiquity Advises Small Businesses on 401(k) Options Under Proposed SECURE Act 2.0 Bill

Questions about which small business retirement plans might be right for you? Rely on Ubiquity to help you customize a simple, low-cost 401(k) solution that perfectly fits your business’ needs. Try our free SECURE Act tax credit calculator to see how much you could save at tax time by launching a new 401(k) program in the coming year. Contact us to schedule a free consultation with a retirement specialist and explore your plan options.

Although cracks have been forming in the foundation of American retirement security for decades, the COVID-19 pandemic has only made them worse.

Even before the worldwide health crisis, many workers were recovering financially from previous economic downturns–along with facing the crumbling three-legged stool of retirement.

Now, according to a June 2021 survey, 15% of Americans say they’re postponing retirement because of the pandemic.

Let’s unpack how the “three-legged stool” of retirement—Social Security, employer pensions, and personal savings—has been slowly coming apart for decades–and what we can do to stop it.

Deconstructing the three-legged stool of retirement savings

The three-legged stool is a metaphor for how many retirement experts traditionally looked at planning for retirement. It was expected that the trio of Social Security, pensions, and savings together would provide a financial foundation for Americans’ golden years. None of these three were supposed to support retirees on its own–you need each one to build a strong retirement foundation.

As times have changed, so must retirement planning strategies. For many workers today, a nest egg built on the three-legged stool is no longer possible.

 Social Security

You may have heard that Social Security, the program created by FDR to prevent aging Americans from falling into poverty, is projected to be depleted by 2033.

How did this happen? Quite simply, there are fewer workers funding the program compared to the number of retirees benefiting from it. In 1950, there were 16.5 workers for every Social Security beneficiary. Today, there are less than 3 workers paying in for each recipient.

This ration shift is due to several factors including:

  • Increasing lifespans in the population
  • Decreases in fertility rates.
  • No change in average retirement age

This doesn’t mean Social Security will disappear completely in 20 years. As of 2019, projections indicate that taxes still being paid by younger workers will be enough to fund about 79% of scheduled benefits.

 Pensions

If you’re a Gen X or Millenial worker, chances are you’ve never been offered a retirement benefit that doesn’t involve you contributing a portion of your paycheck.

Defined benefit plans–such as company-sponsored pensions–once guaranteed workers a steady stream of income after their working years. Throughout the 1980s and 1990s, pensions began rapidly disappearing and being replaced by workplace savings vehicles like 401(k) plans. Today less than 1 in 5 workers have access to a pension, shifting the primary responsibility for retirement security toward the individual.

Personal Savings

As the Social Security well dries up and pensions disappear, the third leg of the retirement stool–personal savings––is more important than ever before. According to 2020 data from the Bureau of Labor and Statistics, while 71% of the American workforce has access to a 401(k), only about 55% participate. When you look at small business retirement statistics, the number of access and participation shrinks even smaller.

To help ensure you have a large enough nest egg, it’s wise to create a plan early in life—or right now if you haven’t already done so. It’s also extremely important to take advantage of workplace savings plans like 401(k) (if you have one available) along with personal tax-advantaged retirement accounts such as an IRA.

Using tools like a retirement calculator can help you figure out if you’re saving enough for the future–or if you’ll need to increase your contributions to achieve financial security in your golden years.

What is being done to address the looming retirement crisis?

We know that no single program can address the challenges facing our current retirement system—it will take several programs and solutions to make progress.

SECURE Act

In 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed as the first major step toward enhancing American’s retirement security. Key changes from the bipartisan legislation included:

  • Increased tax credits – when small business owners set up and run retirement plans.
  • New incentives – for new plans with auto-enrollment.
  • Greater scope – long-term, part-time workers can now participate in 401(k) plans.
  • Expanded options – multiple, unrelated businesses can now partner under a SINGLE PLAN.

This congressional offering is an encouraging sign that politicians are realizing the gravity of the looming retirement crisis and are hopeful it will have a positive impact on the overall financial security of working Americans.

 State Mandates

While the Federal government has enacted some measures toward addressing the retirement crisis, many states have taken the lack of workplace access to savings into their own hands. As of August 2021, over 30 states have introduced some form of retirement legislation–and twelve states are implementing them.

 

State Retirement Savings Initiative Map

[image credit: AARP]

These plans tend to target small to midsize businesses in the private sector, along with low-to-moderate income households. While the rules of these programs vary greatly from state to state, all attempt to bridge the retirement gap for American workers who otherwise would not have access to an employer-sponsored plan.

Want to learn more?

The 2013 documentary Broken Eggs: The Looming Retirement Crisis In America, looks at the financial insecurity today’s retirees and pre-retirees are finding. The film focuses on why Americans are failing to adequately save for the future and the deteriorating “3-legged stool” model of retirement.

Watch below as the film profiles a diverse group of everyday Americans confronting significant retirement planning challenges alongside interviews with economists, policymakers, and financial experts.

4 Tips for 401(k) Administration in 2021

Dylan Telerski / 21 Jun 2021 / Business

401k Plan administration in 2021

As the economy continues its gradual recovery and Americans look forward with cautious optimism to the end of the pandemic, many have questions about the right moves to make with their retirement savings plan. Here are some tips for how to maximize your 401(k) in 2021.

1. Use a retirement calculator to make sure you’re saving enough.

If you’re in the dark about your 401(k) plan, check your most recent 401(k) statement, which may be on paper or delivered electronically. If you don’t have one of these statements handy, ask your Human Resources Department or investment manager. Then you’ll have the information you need to use an online tool – like Ubiquity’s 401(k) calculator – to see the possibilities.

  • What will your savings be when you retire?
  • How much should you be saving for retirement to live the lifestyle you desire?
  • If you put away a little more each pay period, how big an impact will it have years later?
  • What happens if you withdraw some of your retirement savings early?

All these questions can be answered in just a few minutes with a free online retirement calculator.

2. Mitigate risk of CARES Act borrowing.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was the rescue plan many Americans needed in 2020, but it was not free money. The CARES Act allowed qualified individuals to withdraw up to $100,000 from their 401(k) plans, penalty-free and authorized delayed repayments (within three years). Normally an early withdrawal would incur a 10% penalty. It also increased the amount a person could borrow (the lesser of $100,000 or up to 100% of the balance). However, it is important to remember income tax is still due on the withdrawal, though the bill can be minimized or delayed.

If you took advantage of the CARES Act retirement withdrawal in 2020, here’s what you need to do:

  • Start paying your taxes. Report one-third of the distribution on your income tax returns for 2021, 2022, and 2023. So if you borrowed $9,000, you’d pay taxes on $3,000 worth of the distribution over the next three years. This could be the best option if you’re still struggling financially.
  • Avoid having to pay taxes at all. If you can put the money back into your account over the next three years, you can avoid paying taxes on your withdrawal. If you took out $9,000, you could repay $3,000 back into your account in 2021, 2022, and 2023 – and you’ll owe $0 in taxes. This is the best option if you’ve recovered from the financial hit of the COVID-19 pandemic.
  • File an amended tax return. It’s still possible to avoid paying taxes, even if there is great uncertainty this year. Start by paying a third of your tax obligation. If by 2023 you are able to repay your account, you can file an amended return and get the taxes you’ve paid returned in a refund from the IRS.
  • Pay the whole bill up front. If your income for the year is very low, putting you into a lower tax bracket, it might be more advantageous to pay the entire tax bill this year. Some people went from a 22% tax rate down to 12% due to unemployment. In that case, it could mean a $900 tax bill difference on that $9,000 borrowed.

Failure to take care of the IRS obligations of CARES Act borrowing will result in a surprise tax bill in 2023 and hefty penalties that accumulate month after month.

Please note: Ubiquity is not a tax advisor and does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only.. 

3. Contribute more to your 401(k) plan.

Even if you do not have the financial resources to comfortably reach the $19,500 maximum 401(k) contribution for 2021, there are still a number of ways you can contribute more to your retirement this year:

  • Aim to contribute 1-5% more each pay period.
  • Increase your contribution when you get a bonus or a raise.
  • Make sure you can at least reach the company match (if applicable) as this is free money that can double savings.
  • Plan participants 50 years of age or older can contribute an additional $6,500 above this maximum limit to catchup in 2021.

4. Review your plan fees.

Fees can eat away at your portfolio balance over time. You may not have full say over investment fees if your employer manages your plan. If you have a small business 401(k) or solo 401(k), you could be overpaying for your plan administration. The lowest-cost plans, like Ubiquity’s, assess a low, flat, monthly fee for service. However, some 401(k) administrators charge per eligible participant or a percentage as an Assets Under Management (AUM) fee that puts more money in the administrator’s pocket as your balance grows over time. Administrators and investment managers can also charge expensive fund trading fees or loan servicing fees.

One way to bring down the cost is to request that your plan manager add low-cost index funds and ETFs as investment options; investing in funds with low annual fees could potentially boost a nest egg by hundreds of thousands of dollars by retirement time.

Locate your plan’s summary annual report and look under the basic financial statement section to see the total plan expenses and benefits paid. Subtracting the benefits paid from the total plan expenses will give you an idea of what you’re paying for administration. If you divide that number by the total value of the plan, you’ll see your administrative cost percentage. The average American pays between 0.37% and 1.42% in plan fees. If you’re paying a percentage that’s too high, it’s time to consider switching your 401(k) plan administrator. Call Ubiquity today to see how we can help.

A Small Business Owner’s Guide to CalSavers

Answering your top questions about California’s retirement savings program vs. alternative plans

In an effort to help Californians save for a financially secure future, the state of California is rolling out an initiative requiring all employers with five or more employees offer some type of retirement plan for their workers.

CalSavers—the state-sponsored plan—offers a basic Roth IRA to help employees building their retirement savings. But with low contribution limits, limited investments, and limited tax advantages, is it the best solution for empowering your team’s financial future?

At Ubiquity Retirement + Savings, we’ve been helping small businesses and their employees grow their nest eggs for over two decades with affordable, customized 401(k) solutions. While we believe the state’s program is an important step toward ending the looming retirement crisis in California, a 401(k) might be better alternative for your small business and your employees’ futures.

Why is the state of California offering a retirement plan?

55 million American workers—more than 40% of full-time private-sector employees—don’t have access to a workplace retirement savings plan.

Why is this such problem?

As very few employers offer pensions and Social Security is drying up —with funds expected to be depleted as soon as 2035, it’s more responsibility is for saving falls more on the individual than ever before.

Since 2012, at least 45 states have implemented or considered establishing state-facilitated retirement savings programs–with the states of Oregon, Illinois, and our home state of California leading the charge.

In July 2019, California began rolling out CalSavers, the state-sponsored IRA program for the 7.4 million private-sector workers in the state who do not have access to an employer-sponsored retirement savings plan. As of April 30, 2021,  more than 10,000 employers were registered allowing nearly 140,000 individuals to save for their future.

We are rapidly approaching the next CalSavers deadline on June 30, 2021–employers in California with more than 50 employees will be required to enroll in the state-run Roth IRA or offer a private option.

How does CalSavers work?

CalSavers is an automatic-enrollment, payroll deduction Roth IRA. We know this sounds like a lot of financial jargon–so let’s breakdown what that means.

Automatic Enrollment

This means, if your business opts into the state provided IRA, after a 30-day grace period, eligible employees will be automatically start saving for the future through a 5% contribution from their payroll.

How does this work in practice?

Added employees will a notification from CalSavers and will have 30 days to decide to customize their account, opt out of the program, or be automatically enrolled with the standard savings choices.

Payroll Deduction

This means participating employees contribute a portion of their salary into their IRA automatically from each paycheck.

Roth IRA

A Roth IRA is an individual retirement account where the saver pays taxes on money going into your account, and (if you meet certain IRS criteria) all future withdrawals are tax-free.

Roth IRAs have a couple important rules and restrictions to keep in mind.

  • You can’t contribute to a Roth IRA if you make too much money. The income limit for singles in 2021 is $140,000.
  • The amount you can contribute each year changes, based on inflation. In 2021, the contribution limit is $6,000 a year unless you are age 50 or older—in which case, you can deposit up to $7,000.

Click here to read more about 2021 contribution limits

How much does CalSavers cost my business?

There are no employer fees in the CalSavers program–nor are you allowed to make tax deductible matching contributions, as you could in a 401(k) plan.

Your employees, on the other hand, will pay annual asset-based administration fee of 0.825% to 0.95%, depending on their investment choices. These fees will be pulled directly from their assets in their account.

What happens if an employer does not register for a qualified plan by the deadline?

If your business does not register for CalSavers, or an alternative qualified private retirement plan, you may be charged a a $250 penalty per employee starting 90 days after the deadline. The fine increases to $500 per employee 180 days after the deadline.

What are the benefits of enrolling in the CalSavers?

There are several advantages for companies to choose the California’s IRA product including:

  • No cost to the employer
  • No fiduciary risk
  • No investment management responsibilities.

What are the potential drawbacks of enrolling in California’s state provided option?

The access to workplace retirement savings plans offered by Calsavers is a big step forward in solving the looming retirement crisis. However, there are significant drawbacks when compared to alternative eligible 401(k) plans from a private provider like Ubiquity Retirement + Savings.

  • The contribution limit for a 401(k) is more than three times higher than that of an IRA.

Higher contribution rates allow savers to take advantage of the power of compound interest, meaning the more money that is saved, the more it can grow over time.

  • Missing out on significant tax benefits

Did you know small businesses that sponsor retirement plans for their employees are rewarded by the government? Thanks to the SECURE Act of 2019, small businesses can qualify for up to $16,500 in tax credits over a three-year period by starting a qualified retirement plan, such as a 401(k) plan, with auto-enrollment. Employers choosing the state provided option are not eligible for these benefits.

  • CalSavers charges your employees asset-based fees.

Currently CalSavers does not offer the choice to select a flat-fee program, which provides more transparency and ultimately lower costs as savings accumulate. By charging an asset-based fee, your employees are increasingly penalized based on how much they save.

What are the alternatives to the CalSavers program?

Businesses can offer a qualified retirement plan from a private provider, which could allow for more savings while providing tax incentives and greater customization.

Let’s see how the state mandate IRA stacks up against Ubiquity’s most popular small business savings vehicle.

Typical State IRA

Ubiquity 401(k)

Maximum employee annual contribution amount

$6,000

$20,500¹

Additional annual employer contribution limit

Not offered

Yes, up to an additional $40,500¹

Flat fees that don’t increase with your account balance

No, asset-based fees

Yes, flat fees

Tax credit that can total up to $5,500 per year – or $16,500 for the first three years of the new 401(k) plan2

No

Yes

Flexible auto-enrollment and vesting schedules

No

Yes

Investment guidance based on individual risk tolerance

No

Yes

Employee enrollment meetings and education

No

Yes

Auto-enrollment and escalation

Required at mandated levels

Optional and flexible

Customizable investment lineups

No

Yes

  1. This limit is subject to cost-of-living increases for later years (for prior years, refer to this cost-of–living adjustment table.)

  2. Available to eligible employers who have less than 100 employees who received at least $5,000 in compensation in the previous year, had at least one participant who was a non-highly compensated employee, and in the last 3-years did not contribute to a benefit plan for your employees through a plan sponsored by you or a member of a controlled group that includes you.

 

Choose the better path to savings

If you’re looking for the maximum savings potential and tax benefit, Ubiquity provides customizable 401(k) plans that act as a CalSavers alternative. For over two decades we have pioneered flat-fee retirement plans, designed for small businesses, all delivered online to you and your employees. That means no hidden fees or AUM charges in the fine print. We have helped hundreds of thousands of employees save towards their future.

The content of this blog is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. Be sure to consult a qualified financial adviser or tax professional for official guidance.   

If you’re a high earner in 2021, you’ll likely want to maximize the amount of money set aside for retirement. 401(k) plans are tremendous vehicles for producing wealth over time, though there are maximum limits established by the Internal Revenue Service to ensure the wealthiest Americans do not use their retirement plans to evade their tax obligations and to ensure employers are not setting up their plans simply to benefit the top corporate elite. The maximum 401(k) contribution changes from year to year. Get the latest numbers here!

2021 Maximum Contribution Limits for High Earners

There are general maximum 401(k) contribution limits that apply to both high and low earners:

  • Annual Employee Contribution (Under 50): $19,500
  • Annual Employee Contribution (50+): $26,000
  • Employer/Employee Maximum (Under 50): The lesser of 25% of the plans’ total eligible salary OR $58,000
  • Employer/Employee Maximum (50+): The lesser of 25% of the plans’ total eligible salary OR $64,500
  • Maximum Compensation for Employee: $290,000

The $290,000 maximum = 25% of a $232,000 salary + the maximum employer contribution of $58,000.

High Earners Impact a 401(k) Plan’s Compliance With ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that protects individuals by ensuring equal opportunity access to company-sponsored retirement plans. To remain compliant and pass annual nondiscrimination tests, so-called “Highly Compensated Employees” generally cannot contribute more than 2% above their salaries than non-Highly Compensated Employees. So, if the non-HCE group contributes 5% of their combined salary to the company retirement plan, the HCEs cannot contribute more than 7% of their combined salary.

What’s Changed Since 2020?

While the $19,500 individual limit and $6,500 catchup contribution remain the same, changes include:

  • The maximum employer/employee contribution rate increased by $1,000 from 2020 to 2021.
  • The maximum income threshold of $290,000 increased by $5,000 from 2020 to 2021.

There have been no changes to the IRS definition of a “highly compensated” or “key” employee.

Are You a High Earner in 2021?

The IRS defines a Highly Compensated Employee as someone who meets at least one of the following:

  • Owns more than 5% of the business sponsoring the plan at any point within the last year, or has a spouse, child, and grandparents working for the company who collectively own 5+% of the business.
  • Made more than $130,000 in compensation during 2020 (Highly Compensated Employee). Compensation includes paycheck income, overtime, bonuses, commissions, and 401(k) salary deferrals.
  • Ranks among the Top 20% of salaries paid out by the company.*

*This only applies if the Top Paid group is elected in the plan document, please see consult your specific plan’s details.

Example of How a Maximum 401(k) Contribution Limit Applies to a High Earner

Here’s how a 401(k) maximum limit might play out in the real world:

  • Age: Under 50
  • Your annual salary: $400,000
  • Employer’s Plan: 5% match
  • Individual Contribution: $19,500
  • Employer Match: $14,500 (5% of $290,000 maximum)

So, rather than receiving 5% of your salary – which would be $20,000 – the match is limited to the upper threshold of $290,000 set by the IRS in 2021. This amount may increase next year, or the year after, based on cost of living adjustments.

 

Are There Additional Ways to Save for Retirement?

In addition to funding your 401(k) to the max, you can also contribute up to $3,600 into an individual Health Savings Account (HSA) or $7,200 for a family HSA, plus $1,000 extra if you’re over 55.

High earners may also invest as much as they’d like in stocks, bonds, mutual funds, exchange-traded funds, and real estate investment trusts – though they will have to pay taxes on the money invested, as well as capital gains taxes on the earnings.

Contact Ubiquity Retirement + Savings to find out which of our affordable, hassle-free small businesses 401(k)s are right for you and your employees. You can count on a low, transparent monthly fee that stays the same, regardless of your plan balance or participation numbers.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was the first major update to retirement plans in more than a decade.

Certain provisions already debuted, but one of the most significant changes — expansion of eligibility to participate in 401(k) plans – went into effect on January 1, 2021. Wondering what these changes are and what they mean for your small business this year? As a leading small business 401(k) administrator, Ubiquity is here to clarify matters.

Who Is Eligible to Participate in 401(k) Plans, Under the SECURE Act?

The 401(k) retirement savings vehicle is no longer just for long-term, full-time employees working more than 1,000 hours. Under Section 112 of the SECURE Act, eligibility expands to workers who:

  • Are at least 21 years old by the last day of the 401(k) plan year
    and
  • Work part-time for at least 500 hours per year, over the past three consecutive years.

When calculating whether or not an employee has worked “at least 500 hours,” plan sponsors are not required to count before January 1, 2021. So, while you have to start tallying up the hours your part-time workers are putting in starting this year, you may not have to formally enroll these workers into your 401(k) until the 2024 plan year.

The SECURE Act Eligibility Update’s Impact on Nondiscrimination and Top-Heavy Testing

The SECURE Act change will add a layer of administrative complexity, as plan sponsors develop new systems for tracking and reviewing hours for part-time employees over the one to three-year tracking periods.

Sponsors will need to consider whether part-time employees will also be eligible for employer contributions and whether to set a vesting schedule. If a long-term, part-time employee becomes eligible for employer contributions, each of the years they were employed and worked 500 hours (even before January 1, 2021) must count for vesting.

For employers who are subject to nondiscrimination and top-heavy testing, adding long-term, part-time employees can skew the results. The SECURE Act allows a testing exclusion for employees working 500 hours a year, but employees working 1,000 or more hours in one year must be included. If, when you start your plan, it contains more than 100 participants, you will require an independent qualified auditors report to accompany your annual Form 5500. If you’re a growing business that has been considered a small plan in the previous year, you will not be audited until you hit 120 participants.

If you are worried about your ability to pass these annual tests, you may want to consider contacting Ubiquity about adding a Safe Harbor provision to your plan for hassle-free administration.

Eligibility Questions to Consider

Plan sponsors may want to consider this short list of questions to ensure they are prepared for the change:

  • Is the hours of service tracking system updated as of January 1 to stay compliant?
  • Have you updated your plan administration documents to note the new eligibility criteria?
  • Do you wish to expand eligibility for matching or non-elective contributions to these employees?
  • Do you need to update new-hire and recruiting materials to ensure plan participation?

What’s Next?

The House Ways and Means Committee introduced SECURE Act 2.0, otherwise known as the Securing a Strong Retirement Act bill, on October 27, 2020. If passed, this bipartisan bill would, among other things, reduce the 12-month measurement period for long-term, part-time employees from three years to two years. Simply put, don’t plan on making the changes in 2024; prepare your business to increase plan enrollment today.

If you think now is the right time to start your 401(k) retirement savings plan, or have questions about switching providers, call Ubiquity, a leader in setting up and administering low-cost 401(k) plans for small businesses and solopreneurs.

COVID has taken its toll on 401(k) retirement plans, with about 8% of businesses (covering approximately more than 46,000 plans) having cut 401(k) contributions since the start of the pandemic.

While small businesses are more likely to have reduced matching or discretionary contributions as a cost-saving measure, the great majority of companies were able to maintain their retirement contributions in 2020.

Contribution Changes

According to the Plan Sponsor Council of America, more than 1 in 10 small business 401(k)s with fewer than 50 participants have made COVID-19 related changes to their matching contributions within the past year. Organizations with over 5,000 participants were 3x more likely to stay the course.

  • Almost 4 percent of 401(k) plans stopped paying a match to workers entirely.
  • 1.5 percent reduced their match.
  • 1 percent eliminated non-matching contributions.
  • 1.5 percent reduced non-matching contributions.

Though many small business employers have suspended or reduced their contributions this year, more than 90% are still contributing – which is in stark contrast to what happened during the 2008 financial crisis. A September survey by Willis Towers Watson found that most employers that suspended or reduced contributions this year plan to reinstate them by 2021.

Suspending the employer match greatly decreases plan participation and deferral rates, so it’s good that employers are taking advantage of government assistance like the Payroll Protection Program, rather than altering their 401(k)s.

Legislation Amending Loan Rules

Plans are not obligated to incorporate aspects of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, but more than half of small business plans are allowing participants to take advantage of relief by:

  • Permitting workers under 59.5 to withdraw funds as (taxable) income, without the 10% penalty.
  • Allowing increased 401(k) plan loan amounts (up to 100% of the balance, rather than the usual 50%).*
  • Pausing repayment of existing loans that were due through December 1, 2020.
  • Letting workers defer loan payments for up to one year, and, if taken for a COVID-19 hardship, allowed to repay gradually over three years.

Initially, there was not much of an increase in plan loans or withdrawals for small businesses early in 2020, but a quarter of small business 401(k) sponsors reported use of the loan feature as 2021 inched nearer. Nearly 40 of plans noted an increase in withdrawals.

*Ubiquity did not allow for this plan provision

Ubiquity Helps Small Businesses Weather the COVID-19 Crisis

Ubiquity is one of America’s leading administrators of 401(k) plans for small businesses, offering affordable flat-fee plans geared specifically toward small enterprises with fewer than 50 employees, independent contractors, and self-employed workers. We are here to answer questions, provide strategic advice, and help you make the most of small business retirement plans. Easy online setup and management allows you to get started saving for retirement without delay or make changes to your plan as needed.

2021 Solo 401(k) Contribution Deadline

Dylan Telerski / 22 Mar 2021 / Business

Self employed woman saving in a solo 401k in 2021

Did you know it’s not too late to set up and make contributions to a Solo 401(k) for 2020?

Previously, in the years prior to 2020, you would’ve had to get your account established by December 31, but the SECURE Act gives solopreneurs until the business tax deadline, April 15, 2021, to sign up for a Solo 401(k) and start saving for retirement. You may also request an extension to the 2020 Solo 401(k) contribution deadline to get even more time to make your contributions for the year.

What Are the Solo 401(k) Deadlines for 2021?

  • Single LLC and C Corps have until April 15, 2022, to set up and contribute to a Solo 401(k) for 2021.
    Please note: If a plan is adopted in 2022 for 2021 you cannot make pre-tax or Roth deferrals, but you can still make after-tax and employer contributions.
  • Partnership LLC and S Corps have until March 15, 2022, to set up and contribute to a Solo 401(k).
  • If you request and receive an extension, you may have until September or October 15, 2022, or until you file your taxes.

What Are the Solo 401(k) Contribution Limits for 2021?

  • As an employee, you may contribute up to 100% of your wages to your Solo 401(k), to the maximum.
  • The maximum Solo 401(k) contribution limit for employees is $19,500 in 2021.
  • If you’re over 50, you may contribute an additional $6,500.
  • As employer, you can reserve up to 25% of the business entity’s income, to the maximum.
  • The maximum limit for total employee/employer contributions is $58,000 in 2021.
  • If your spouse works for the business, the same allowances may be made on his or her behalf.

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Should You Explore Solo 401(k) Plans in 2021?

Solo 401(k) plans offer many benefits over other types of retirement savings vehicles – particularly with the high limits of contributing as both “employer” and “employee.” The ability to choose between traditional and Roth plan types is another benefit, allowing you to choose to pay taxes on the amount invested now and enjoy a tax-free retirement, or skip on paying taxes now and allow your money to compound. If you experience financial hardship, you have the freedom to borrow from your Solo 401(k) if necessary – a key difference between a Solo 401(k) and a SEP IRA.

Opening a Solo 401(k) is easy. Online plan administrator Ubiquity will set you up in no time. If desired, you can rollover money from other accounts or set up automatic transfers from your checking, savings, or payroll accounts. If you’re interested in setting up a Solo 401(k), contact Ubiquity to establish a low-cost plan in minutes.

During his 2020 campaign, President Joe Biden proposed changes to 401(k) retirement plan rules that would likely benefit low and middle-income earners. In this blog, Ubiquity breaks down the potential impact of the proposed changes.

Traditional 401(k) Regulations

Traditionally, employees in 2021 could contribute up to $19,500 a year. Employers (or self-employed individuals) could save up to a combined maximum of $58,000. Savers can set aside an additional $6,500 in catch-up contributions if they’re over 50. The amount saved is deducted off income for the year, thus reducing their taxable income.

For instance, a person earning $200,000 a year putting in 10% to a 401(k) would only pay taxes on $180,000. Yet, a person earning $40,000 who contributes the same 10% would be taxed on $36,000. Lower earners would not reap as much in tax savings and are less incentivized to save. Employees who don’t save enough for retirement may work well beyond their most productive years because they have to, which decreases company performance and morale.

Biden’s 401(k) Plan

At this point, there is still much we don’t know. Biden says the plan would “equalize” the incentive system by replacing tax-deductible contributions with a flat tax credit for every dollar saved. The exact amount of the credit is yet-to-be-determined, but the Urban-Brookings Tax Policy Center estimates a 26% credit.

So, under this plan, if a person contributes $100, the IRS will issue a $26 credit. Someone earning $600,000 would get the same tax break as someone making $60,000 – a $260 tax credit for a $1,000 contribution. As a “refundable” credit, employees receive the full refund, even if it’s more than what they owe.

By and large, the plan would benefit lower and middle-income earners more, while high earners may move to Roth 401(k) accounts.

Additional proposals of Biden’s small business retirement plan include:

  • Automatic Enrollment: 

    Under Biden’s plan, almost all workers will be given the opportunity to conveniently save for retirement at work with a 401(k) savings plan.

  • Federal Backing for Multi-employer Defined Benefit Pension Plans: 

    Forthcoming proposals will seek to provide federally backed loans to underfunded multiemployer defined benefit pension plans.

  • Social Security Payroll Taxes: 

    High-income earners may be required to pay Social Security taxes on a larger proportion of their income. Now, employees and employers each pay 6.2% of wages to fund Social Security. This tax applies to earned income up to $142,800 for 2021. The new plan would increase Social Security taxes for earnings above $400,000, which would be taxed at 12.4%.

  • Financial Transaction Taxes:

    Whenever someone buys or sells a security, it would be considered a taxable event. This tax would pay for new government programs. Retirement plans tend to be the largest purchasers of securities, so the additional taxes may change how plan sponsors buy and sell.

  • Top Income Tax Rates: 

    The Biden plan proposes to increase the individual income tax rate on incomes above $400,000 from 37 percent to 39.6 percent.

Start Your Small Business 401(k) with Ubiquity

Looking for the best 401(k) for your small business? Ubiquity is a leading provider of 401(k) retirement plans for small businesses, whether you’re looking for a plan that covers one or 100. Our platform provides easy online setup in minutes and management that is accessible 24/7. Ubiquity customer service extends to both employers and employees alike. We are happy to help you navigate legislative changes and advise you on the best moves for your situation, at the industry’s most affordable flat-fee rate. Small business retirement planning can be a challenge, especially when the laws are always changing. Ubiquity is here to help. New plans are eligible for up to $16,500 in tax credits over the next three years, so contact us to learn more.

Americans have expressed increased interest in Environmental, Social, and Corporate Governance (ESG) funds over the last decade.

U.S. investors have sunk $17 trillion into assets managed by companies that promote diversity and clean energy. About one-third of all professionally managed assets fit ESG investment rules. Americans invested $21 billion in ESG mutual funds in 2019 – four times the prior record. Despite the economic turmoil, 2020 ESG funds are more than double the records set in 2019. While ESG funds have grown in the last few years, workplace retirement plans have generally not been robust in exploring green investment options.

401(k) Plans and ESG Funds

Workplace-sponsored retirement plans represent a huge pot of wealth. Almost a third of all U.S. retirement assets are held in 401(k) plans. Yet, only 3% of 401(k) plans offer employees an ESG fund investment option. As a result, only a tenth of 1% of 401(k) assets are held in socially responsible funds.

Several roadblocks have prevented these investors from scooping up ESGs:

  • Retirement investment trends

    Target-date funds dominate the workplace retirement plan sphere. The emphasis placed on all-in-one funds that shift from stocks to bonds as investors near retirement are a “safe” default for all employees who are auto-enrolled. One in every $5 invested in 401(k) plans are tied up in such funds – up from one in $10 a decade ago.

  • Possible lawsuits

    Employers are afraid of going out on a limb with investments that could have higher costs or underperform. Companies that pledge adherence to ESG principles will need to live up to their disclosures or find themselves on the receiving end of lawsuits. Even though all but one ESG index fund had higher net returns this year, these lawsuits could potentially jeopardize shareholder profitability, making ESG a riskier type of investment.

  • Trump administration rules

    The Labor Department changes guidance and regulation of ESG funds with every new administration. The Trump administration issued a rule requiring employers to evaluate investments exclusively based on risk and return, rather than taking social responsibility or environmental concerns into consideration. Further, employers were explicitly prohibited from auto-enrolling workers into an ESG fund.

Are Changes Coming in 2021?

2021 has already seen significant movement toward alleviating roadblocks for 401(k) investing based on ESG factors. In March 2021, The Biden administration announced that it would not enforce the 2020 Trump administration rule that made it harder to offer ESGs in workplace retirement plans.

Start Your Small Business 401(k) Plan in 2021 With Green Investment Options

For over two decades, Ubiquity Retirement + Savings has pioneered retirement savings plans designed exclusively for small and micro businesses. Since day one, our innovative solutions and low-cost, flat fee pricing make it easier than ever for small businesses to save for their future.

Our customizable 401(k) offerings include an optional turnkey ESG investment lineup, allowing small business owners to empower employees with the opportunity to save for the future while applying their savings toward the causes they care about most.

Just like personal values, investment strategies are not one-size-fits all. Ubiquity’s sustainable investment lineup includes low-cost mutual funds and exchange-traded funds (ETFs) from Vanguard, giving your team a broad range of options based on risk and personal preference.

Offer a 401(k) plan for your team with a fully diversified investment lineup that offers options for green investors.

Learn more about socially responsible investing with Ubiquity

You’re contributing to your workplace retirement account–that’s great! But how are you dealing with the taxes of the money you can contribute. There are two ways you put money into your 401(k) retirement plan– pretax or Roth.

Pretax contributions are the traditional form of 401(k). This means contributions come out of your paycheck before taxes, and are your distributions in retirement are taxed. This is useful if you’re earning more now than you plan to in retirement. Plus, you lower your taxable income in the present!

Think of the Roth 401(k) as the rebellious little sister of the pretax 401(k). Introduced in the early 2000s, it takes the tax treatment of a Roth IRA and applies it to your employer-sponsored plan. That means contributions come out of your paycheck before taxes, and distributions in retirement are tax-free. That means you don’t pay taxes on your investment growth!

Let’s look at the similarities (and differences) between the two retirement contribution types.

Traditional 401k vs Roth 2021 contribution limits

Traditional 401(k) plans are pretax savings accounts. This means your contributions are made before they've been taxed. Roth 401(k) plans are post-tax savings accounts. This means your contributions are made after they've been taxed.

If you contribute to a 401(k) plan at work, your employer can choose to match a percentage of your contribution. Any employer match will be taxable in retirement.

All About Withdrawals: In a traditional 401(k) distributions in retirement are taxed, just like ordinary income. In a Roth 401(k) there are no taxes on qualified distributions in retirement.

 

Learn more

Curious about different types of retirement accounts? Learn the difference between an Individual Retirement Account (IRA) and a 401(k).

If you’re a small business owner and need a 401(k) or Roth 401(k) plan for yourself and your company, only Ubiquity offers flat-fee plans plus free expert advice. We’ll fully customize your 401(k) to meet the specific needs of your small business.

Check out our cost-effective, plan solutions

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© 2022 Ubiquity Retirement + Savings
Privacy Policy
Do not sell my info
44 Montgomery Street, Suite 3060
San Francisco, CA 94104
Support: 855.401.4357

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