Three 401(k) Reforms That Can Help Save America’s Retirement

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The most efficient way to improve the retirement situation in America is to provide incentives to business owners. The more the governement is involved the less efficient this and any other system will be.

1. Double the Incentives That Help Small Businesses Get a 401(k) StartedUncle Sam currently offers a solid incentive for business owners with less than 100 employees to start a 401(k) plan.  However, to create a splash in awareness and encourage more small businesses to move forward with a 401(k), the federal government can do more.

Currently, the IRS provides an annual $0.50 per dollar tax credit up to $500 per year during the first three years of a new 401(k) plan to help offset the setup and administrative costs; the value of this credit over three years equals up to $1,500.  A company with 25 or less employees can reasonably expect to pay between $1,000 to $2,000 a year in administrative fees.  Other related expenses such as matching contributions are also tax deductible for the business.

To create a step change in helping businesses start a plan, the government would be wise to double the incentive by providing a dollar for dollar credit for up to $1,000 for the first three years but only if the company starts a plan by 2013. After that, the credit would expire back to its previous lower level.  Deadlines like this help create serious consideration of employers without a plan.  This could be communicated by the IRS via the news media and directly in their regular tax communications with employers. And while not every small business would jump at the opportunity, it could create significant movement for those who have put it off and have always wanted to provide the benefit for their employee (and themselves).

These type of incentives will help small businesses establish and commit to a company sponsored retirement plan. In order to prevent the federal government from nationalizing the retirement system, small businesses need to take on this awesome responsibility.

Please comment or call to discuss how this affects your company.

  • 401(k) plan participation could fall victim to proposed health care affordability test (
  • An Employer’s Guide in Choosing which Retirement Plan to set up (
  • Small Business Owners: Workers financially unprepared for retirement at crisis level. (
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