Since 2021, GBQ and The Siekmann Company have worked together to empower the growth of our region’s business community through further integration of business planning and consulting capabilities. Rooted in a combined mission of empowering the growth of our people, our communities, and our clients’ businesses, this partnership allows clients to receive exceptional accounting, tax, and consulting services while also providing them with access to a leading provider of retirement and employee benefit plans. Read more about GBQ’s partnerships.
Encouraging Plan Establishment Through Tax Incentives
The restaurant industry faces unique challenges when it comes to providing retirement savings options for employees. Many restaurants, particularly small and independently owned establishments, operate on thin profit margins. As a result, they may lack the financial resources to establish and maintain comprehensive retirement plans. Additionally, the high turnover rate and prevalence of part-time and seasonal workers in the industry make it difficult to implement and manage traditional retirement savings programs. As a result, restaurant employees often have limited access to employer-sponsored retirement plans. This fact often hinders their ability to adequately save for the future.
The SECURE 2.0 Act of 2022 aims to address some of these barriers by offering increased tax credits for small businesses starting retirement plans and expanding eligibility for long-term, part-time workers. The goal is to encourage more restaurant owners to provide retirement benefits and help employees build financial security.
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Tax Credits for Small Employer Start-up Plans
The SECURE 2.0 Act of 2022 introduces substantial tax credits aimed at encouraging small businesses, including restaurants, to establish retirement plans for their employees. For employers with up to 50 employees, the Act increases the startup tax credit to 100% of administrative costs, up to an annual maximum of $5,000. For employers with greater than 50 employees but less than 100, the credit is 50%. The credits will last for the first 3 years of the installation of the plan.
Tax Credits for Employer Contributions
Additionally, the Act creates a new employer contribution tax credit. This credit provides up to $1,000 per employee for the first 50 employees earning less than $100,000 per year. This credit phases down over five years, starting at 100% in the first and second years, 75% in the third year, 50% in the fourth year, and 25% in the fifth year.
Together, these credits significantly reduce the financial burden on small businesses. As a result, thanks to SECURE 2.0, it’s more feasible for restaurant owners to offer retirement benefits and attract and retain talent.
Expanded Eligibility
Long-Term, Part-Time Worker Qualifications
The SECURE 2.0 Act of 2022 significantly expands eligibility requirements for retirement plans. Now it is easier for long-term, part-time employees to participate. Under the new provisions, 401(k) employees who have completed at least 1,000 hours of service in a one-year period or 500 hours per year over three consecutive years (starting from Jan. 1, 2021) are eligible to participate in a qualified retirement plan. This eligibility period is further reduced to two consecutive years for long-term, part-time employees entering the plan in 2025. This change is particularly impactful for the restaurant industry, where part-time and seasonal work is common.
By expanding eligibility, the SECURE 2.0 Act ensures that more employees in the restaurant sector can access retirement benefits, promoting financial security and encouraging long-term employment.
Auto-Enrollment Requirement For Start-up Plans
Newly established 401(k) and 403(b) plans must include automatic enrollment features starting from Jan. 1, 2025. For restaurant owners starting new ventures, this requirement simplifies the process of enrolling employees in retirement plans, ensuring broader participation and fostering a culture of saving.
Changes to Catch-Up Contributions
Higher Catch-up Contributions For Ages 60-63
Starting January 1, 2025, eligible participants aged 60-63 can make higher catch-up contributions. This provision supports older restaurant employees nearing retirement, allowing them to boost their savings.
Catch-Up Contributions As Roth For Higher Earners
Starting Jan. 1, 2026, catch-up contributions for participants with FICA compensation greater than $145,000 must be made as Roth contributions. This provision affects higher-earning employees, such as restaurant managers and executives, allowing them to make tax-advantaged contributions to their retirement plans.
Required Minimum Distributions (RMD)
One of the key changes is the increase in the age at which individuals must begin taking RMDs. Starting Jan. 1, 2023, the age for RMDs has been raised from 72 to 73, and it will further increase to 75 beginning Jan. 1, 2033.
Flexible Distribution Options
Employee Self-Certification Of Hardship Withdrawals
Plan sponsors may rely on an employee’s written self-certification for hardship withdrawals, without needing to substantiate the hardship at the time of the request. This provision simplifies the process for restaurant employees facing financial difficulties, allowing them to access their retirement funds more easily.
Streamlined Rules For Withdrawals From Retirement Funds For Disaster Relief
Participants can withdraw up to $22,000 without the 10% early distribution penalty if affected by a qualified federal disaster. Given the restaurant industry’s vulnerability to natural disasters, this provision offers crucial financial relief to affected employees.
Emergency Expense Withdrawals
Participants may withdraw up to $1,000 per year for emergency expenses, with certain conditions. This flexibility is valuable for restaurant employees who may face unexpected financial challenges.
Domestic Abuse Withdrawals
Participants who self-certify experiencing domestic abuse can withdraw up to $10,000 or 50% of their vested account. This provision offers critical support to employees in distressing situations, ensuring they have access to necessary funds.
Conclusion
The SECURE 2.0 Act of 2022 presents numerous opportunities for the restaurant industry to enhance employee benefits and streamline retirement plan administration. By understanding and implementing these provisions, restaurant owners can attract and retain talent, promote financial security among employees, and ensure compliance with new regulations. As the industry continues to evolve, staying informed about legislative changes is crucial for maintaining a competitive edge and fostering a supportive work environment.
All this to say, if your business is facing similar challenges, consider reaching out to The Siekmann Company to find out if you could benefit from these offerings by SECURE 2.0 while providing new benefits to your employees to increase overall retention and employee satisfaction, and staying compliant with changes to your existing benefit plans. For more information, visit siekmannco.com. Or, reach out to your GBQ advisor.
Want to learn more about how to improve your organization’s retirement plan strategy? Check out these resources:
Tax Credits For Retirement Plans
Enhancing Transparency In Healthcare: Insights From The Prescription Drug Data Collection
Key Takeaways From The CAA-Mandated Prescription Drug Cost Report
