New SECURE Act legislation could help offset some of your plan start-up costs.
The SECURE Act allows small businesses with fewer than 100 employees to claim a tax credit of 50% of the qualifying start-up costs for a new employee retirement plan ( *, which is an optional feature of the Simply Retirement by Principal® 401(k) plan. Plus, any matching contributions your client makes to employee retirement accounts are tax-deductible. Consult appropriate counsel for guidance on how these credits may apply.*). There’s also an extra tax credit of up to $500 per tax year for adopting
Simply Retirement by Principal® 401(k) plan features
Features for business owners
Automatic employee enrollment. Business owners have the option for employees to be automatically enrolled at a default pre-tax contribution percentage (set by the business owner). Employees must be 21 years of age or older to be eligible for the plan. If the automatic enrollment option is selected, once the employee meets the plan's age and service requirements, they will be automatically enrolled at a default pre-tax contribution percentage set by the business owner and begin making contributions to the plan immediately.* Participants can change their deferral or opt out at any time. They’ll also have contributions directed to the plan’s qualified default investment alternative (QDIA) unless they elect otherwise. If the business owner is working with a TPA, other eligibility, automatic enrollment, and vesting options may apply.
*Regardless of whether they meet the plan's age and service requirements, union employees, nonresident aliens, and independent contractors aren't allowed in the plan.
Optional automatic contribution increases. Business owners can choose to have their employees' contributions remain fixed unless they change them, or auto-escalate 1% each year up to 10%.
Profit-sharing flexibility. Business owners have the option to contribute company profits back to employees’ 401(k) plan accounts.
Payroll provider integrations. Business owners can save time and reduce errors by automating contribution reporting from their payroll provider system directly into Simply Retirement by Principal®.
Protection through an ERISA fidelity bond. Business owners will get an ERISA fidelity bond to protect the plan's assets (up to $250,000 in assets, which equals a $25,000 bond).
Easy-to-use online platform for plan administration. Business owners will manage their plan using the intuitive Ubiquity Retirement + Savings® platform.
Automated signup and onboarding. Employees will receive an email from Ubiquity as soon as they’re eligible with instructions to set up a login to their plan account.
Recordkeeping. Services include tracking which employees are participating, the amount they’ve invested, and the amount invested in each of the plan funds.
Compliance testing. Ubiquity's team of compliance experts performs annual plan compliance nondiscrimination testing.
Filing and reporting. We help business owners stay on top of required documentation—like IRS Form 5500, plan document preparation and filing, participant disclosures, QDIA, and annual plan notifications.
Dedicated phone number. There's a team of people just a phone call away if you or your clients have a question.
Owner participation. This isn’t just a benefit for employees; qualifying business owners can also participate and maximize their retirement savings with any available matching contributions.
Features for participating employees
Preset investment options. Participants can pick from a carefully selected lineup of investment options. Wilshire Associates, Inc. is the 3(38) plan fiduciary. See investments we offer.
Vesting schedule flexibility. Business owners can choose to have their employees 100% vested in the 401(k) plan immediately or on a 6-year graded vesting schedule.
Roth contributions. Participants can choose to make both pre-tax and Roth (after-tax) contributions to their 401(k) plan from their dashboard once they set up their online account. Auto-enrollment contributions are only pre-tax contributions.
Loans. Participants can request to take a loan from their 401(k) plan balance and select a loan repayment schedule that best suits them. Only one loan may be outstanding at a time. Loan repayments are made via after-tax payroll deductions. The interest portion of the loan payment is applied to the participant's account.
Rollovers. Participants can roll over eligible accounts into their 401(k) plan. (Rollover contributions can be distributed at any time.)
Financial wellness. Participants will have access to a comprehensive financial wellness platform that provides tools and resources to employees to better manage their current and future financial well-being.
Hardship withdrawals. Business owners can also choose to have the plan allow for hardship withdrawals.
Investments we offer
Wilshire Associates, Inc. will provide objective, independent third-party oversight for the screening, selection, and monitoring of the investment options for Simply Retirement by Principal® and will have discretion for making changes when they deem appropriate. Wilshire Associates, Inc. is a diversified global financial services firm with 40-plus years of experience providing investment guidance to some of the largest plan sponsors in the U.S. The firm’s core strength is in the use of market-tested manager research techniques that have been refined over four decades serving the institutional and pension consulting marketplace.
Financial professionals can select one of the available Wilshire 3(38) investment lineups for each plan. Participating employees have the option to choose their mix of investments from the preselected investment lineup.
Financial professional and third party administrator (TPA) compensation
Simply Retirement by Principal® offers investments made available through a group annuity contract. If you or your firm are compensated from plan assets, you can choose a flat fee (not to exceed 50bp annually), or 25, 50 or 75 basis points annually based on assets under management. Group annuity contracts are treated as an insurance product and require appropriate insurance licensing and/or security registration to receive compensation. Our credential validation process will determine if you meet the appropriate criteria. If additional information is required, we will work with you to ensure the appropriate requirements (differentiated by state) are met.
How does this 401(k) plan compare to other types of retirement plans?
When it comes to workplace retirement plans, we know a 401(k) plan isn’t your clients’ only option. Feel free to use this high-level comparison to walk them through their choices as you discuss what type of plan might best fit their needs.
*Up to $5,000 per tax year for the first three years: 1) $500 or (2) the lesser of (a) $250 for each non-highly compensated employee who is eligible to participate in the plan or (b) $5,000. Qualified startup costs (1) In general “qualified startup costs” is ordinary and necessary expenses of an eligible employer which are paid or incurred in connection with -- (i) the establishment or administration of an eligible employer plan, or (ii) the retirement-related education of employees with respect to such plan. (2) Plan must have at least 1 participant: would not apply if plan does not have at least 1 employee eligible to participate who is not a highly compensated employee. Information about the SECURE Act is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
*Automatic enrollment: Automatic enrollment is a plan provision which automatically enrolls participants into the retirement plan at a specified pre-tax salary deferral percentage. This can help increase participation, simplify administration, and help employees save for retirement. Participants in the Simply Retirement by Principal® 401(k) plan are automatically enrolled, but can change their contribution details or opt out at any time. This credit is for plans that include the eligible automatic contribution arrangement (EACA) feature only.
*19,500: Up to $26,000 for employees age 50 or older. Amounts are for the 2020 tax year.
*19,500: Up to $26,000 for employees age 50 or older. Amounts are for the 2020 tax year.
*19,500: Up to $26,000 for employees age 50 or older. An employee of a “qualified organization” with 15 years of service may be eligible to contribute an additional $3,000. Amounts are for the 2020 tax year.
*13,500: Up to $16,500 for employees age 50 or older; can’t exceed 100% of compensation. Amounts are for the 2020 tax year