Pooled Employer Plans, or PEPs, have become an increasingly attractive option for businesses seeking a cost-effective way to offer retirement benefits. Designed to streamline administration and lower costs through economies of scale, PEPs make it possible for small to mid-sized businesses to provide competitive retirement benefits that were once out of reach. But thanks to recent updates under the SECURE 2.0 Act, these plans have become even more appealing, unlocking new tax credits and incentives that can significantly offset the costs of setting up and maintaining a retirement plan. 

For businesses looking to cut costs and manage financial challenges, these new credits represent an opportunity to support employees’ financial futures without putting undue pressure on the bottom line. Let’s explore what these tax savings look like under the latest legislation, and how they make PEPs one of the best retirement solutions for today’s employers. 

Section 1: Why PEPs are Financially Attractive Today 

PEPs were created with simplicity and cost-sharing in mind. Unlike traditional 401(k) plans, where each business shoulders the full administrative burden, a PEP allows multiple businesses to join a single plan and share the associated costs. This setup benefits companies by reducing the administrative demands and financial responsibilities, creating a more manageable and affordable retirement solution. 

Recent legislative initiatives, particularly the SECURE 2.0 Act, have opened new doors for businesses to not only offer PEPs but to receive meaningful financial incentives to do so. The goal of this legislation is clear: to make retirement more accessible to employees of small and mid-sized businesses by removing financial barriers for employers. With provisions that expand tax credits and reduce setup costs, the legislation makes PEPs a powerful tool for business growth and financial management. 

Section 2: Key Tax Credits Introduced by Recent Legislation 

The recent legislative push for broader retirement access has opened up new tax benefits specifically aimed at businesses joining Pooled Employer Plans (PEPs). The SECURE 2.0 Act, a continuation of earlier retirement reforms, introduces expanded credits that significantly reduce the financial commitment required to start and maintain a retirement plan. Here’s a breakdown of the most impactful credits: 

1. Startup Cost Credits: Covering Initial PEP Expenses 

For small businesses just beginning to offer retirement benefits, SECURE 2.0 provides substantial credits to cover startup costs. Qualified employers can now receive credits that cover up to 100% of the administrative expenses involved in launching a PEP, capped at $5,000 per year, over a 3-year period. This can cover initial setup, as well as recordkeeping, and administration fees. 

• Example: A small business with 25 employees could now launch a PEP with minimal financial strain, using the credit to cover most, if not all, initial costs. By alleviating this burden, businesses can focus on choosing the best plan options rather than worrying about upfront expenses. 

2. Enhanced Administration Credits: Easing the Ongoing Cost of Plan Maintenance 

Beyond the setup phase, ongoing administration costs can add up. New legislation includes credits that help offset these continuous expenses, making long-term plan maintenance far more feasible for small and medium-sized businesses. This expanded credit applies annually for the first three years, ensuring that employers don’t need to compromise on plan quality or services over time.  

• Key Benefits: 

• Cost-sharing through PEP providers: With a PEP, businesses already benefit from shared administrative costs. Adding these new credits means that even the residual expenses can be substantially covered. 

• Higher caps for eligible businesses: The legislation now provides a broader credit allowance for businesses with fewer than 100 employees, with a higher limit for smaller firms, further reducing financial impact. 

3. Employee-Based Tax Credits: Direct Benefits for Small Employers 

To encourage small businesses to offer retirement benefits, SECURE 2.0 includes an additional credit based on the number of non-highly compensated employees participating in the plan. This credit, designed to reward companies making retirement benefits accessible to lower and middle-income employees, can cover up to $1,000 per eligible employee, depending on the company’s size and plan specifics. 

Additionally, SECURE 2.0 provides employer contribution credits, offering an extra incentive for businesses that contribute directly to their employees’ retirement accounts. These credits apply to contributions made for non-highly compensated employees and can further offset plan expenses. By combining these credits, businesses can save on both administrative and contribution costs, maximizing the financial benefits of offering a robust retirement plan. 

• Example: A business with 10 non-highly compensated employees could receive up to $10,000 in additional credits, creating a powerful incentive to retain and reward team members with strong retirement benefits. If the business also makes employer contributions to these employees’ accounts, it can qualify for further savings through employer contribution credits, amplifying both the company’s tax savings and the employees’ retirement security. 

Section 3: Steps to Access and Maximize Tax Credits through PEPs 

Once you understand the substantial tax credits now available through Pooled Employer Plans (PEPs), the next step is to ensure your business takes full advantage of these benefits. With the right approach, you can maximize these credits and ease the financial transition into providing retirement benefits. Here are some practical steps to guide you: 

Step 1: Partner with a Qualified PEP Provider 

A qualified PEP provider, like Peppermint401k, can help businesses navigate the complexities of retirement plan setup and management. Providers handle most administrative tasks and ensure compliance with IRS and Department of Labor regulations, which is essential for accessing and retaining tax credits. 

Step 2: Track Eligible Startup and Administrative Expenses 

Accurately tracking your qualifying startup and administrative costs is key to maximizing tax credits. Keep detailed records of all expenses related to plan setup, employee enrollment, account maintenance, and administrative activities. These records will be necessary for claiming credits and ensuring compliance. 

• Example: Eligible expenses might include plan documentation costs, employee communications, setup fees, and technology used to manage the plan. Organizing these expenses from the start will help you take full advantage of available credits. 

Step 3: Work with a Tax Advisor to Maximize Your Credits 

Tax codes related to retirement plans can be complex, and new credits like those introduced under SECURE 2.0 require careful navigation. Partnering with a tax advisor who understands retirement plan tax credits can help you claim the maximum benefit, ensuring you don’t miss out on any available savings. 

• Key Areas to Review with Your Advisor: 

• Eligibility criteria for specific credits, especially if your employee count changes year-over-year. 

• Coordination of credits with other tax incentives, particularly for companies that offer additional benefits. 

• Planning for future credits as the business and PEP grow, allowing your company to continue maximizing tax efficiency. 

Step 4: Consider Employee Education and Engagement 

Employee participation is essential for some credits, especially those tied to non-highly compensated employees. Offering educational resources and communication about the benefits of retirement savings can encourage more employees to participate, helping your business qualify for additional credits while fostering a positive workplace culture. 

• Suggestions for Engagement: 

• Host informational meetings about the retirement plan to boost enrollment. 

• Provide digital resources, such as guides or videos, explaining the value of retirement savings. 

• Partner with your PEP provider to deliver ongoing updates and support, keeping employees informed and invested in their financial futures. 

Conclusion

With the tax incentives available through recent legislation, PEPs offer businesses a cost-effective way to provide high-quality retirement plans. By partnering with a knowledgeable provider, keeping detailed records, collaborating with a tax advisor, and encouraging employee participation, your business can unlock significant savings while supporting your team’s financial well-being. Reach out to Peppermint401k today to explore your options and see how we can guide you toward maximizing these valuable tax credits.