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Benefits August 1, 2025
Size Matters. Has SECURE 2.0 Helped?
New and enhanced tax credits are driving up small plan adoption, but time is ticking.
Reported by Emily Boyle
Art by Greg Clarke
Nearly three years after the enactment of the SECURE 2.0 Act of 2022, firms with fewer than 100 employees have found some relief from the costs of offering their employees a retirement plan.
Firms with fewer than 100 employees were much less likely to offer a plan than larger firms in 2021, according to the Center for Retirement Research at Boston College. At the time 95% of private sector firms with at least 500 employees offered their employees a plan, while 79% of those with 50 to 99 employees did the same. The figure fell to 52% for employers with fewer than 50 workers.
“If you evaluated the growth of the 401(k) industry in general and in particular … adoption with small plans, you would see an incredible uptake congregated in the first quarter of 2023,” says Edward Gottfried, vice president of product at Betterment at Work. The “timeline is the same as when the tax credits went into effect.”
Where to Give Credit
Gottfried points to two tax credits for small businesses that came out of SECURE 2.0: 1) an expansion of the plan cost credits from the Setting Every Community up for Retirement Enhancement Act of 2019; and 2) employer contribution credits for plans starting after 2022.
The expanded plan cost credit reduces the amount of federal taxes that a small business may owe during its first three years offering a retirement plan. Employers with 50 or fewer workers receive a credit covering 100% of the employer’s ordinary and necessary out-of-pocket plan costs, and employers with 51 to 100 employees receive 50% coverage. The original SECURE Act had the coverage at 50% for employers with 100 employees or fewer.
The employer contribution credit provides a decreasing percentage of the amount contributed by the employer for each employee earning less than $100,000 per year, up to $1,000 annually per employee, over a plan’s first five years. The credit for plans with 50 or fewer employees phases out from 100% coverage in Year 1 to 75% in Year 3, 50% in Year 4, 25% in Year 5 and 0% thereafter. For plans with 51 to 100 employees, the percentage is reduced by 2% for each employee in excess of 50.
“The proof of how successful tax credits are is the fact that they were expanded from [SECURE 1.0],” says Zachary Keep, manager of compliance risk at Paychex. “SECURE [1.0] was the dry run for this concept of incentivizing plan establishment.”
Challenges Facing Small Businesses
Administrative understanding and workload costs have been the biggest impediments to small businesses looking to establish retirement plans, according to Betterment’s Gottfried.
A business might have one person who is “wearing many hats,” such as managing payroll and benefits, while serving as corporate treasurer at the same time, Gottfried says. “Inevitably, they don’t have a lot of time to go incredibly deep on all those different areas.”
He says that startup costs are not only financial, but also include the time and effort required to set up a plan.
“But if you’re going to eliminate entirely one portion of the cost, which is the financial portion, it really does go pretty far,” Gottfried says. “The fact that these tax credits can cover up to 100% of the costs of the plan itself is really meaningful to a cost-sensitive small business.”
According to the CRR report, the two most commonly cited barriers that prevented small firms from offering a retirement plan in 2023 were revenue concerns/business size and costs or administrative burden.
But according to the report, most small firms—particularly those with 50 or fewer employees—were not aware of the plan cost credit when surveyed. About 80% of respondents said having such a credit would make offering a plan more attractive.
“Probably the single best hurdle[s] … [are] knowledge and awareness, as always,” says Paychex’s Keep. “Getting off the bench … really comes down to … education, because more and more employers need to offer a retirement plan.”
Who Benefits—and How
Keep says that from an employer’s perspective, startup credits are the more beneficial small plan tax credits. From an employee’s perspective, both the startup credit—which “incentivizes their employer to offer a plan in the first place”—and the employer contribution credit help their employer offer a retirement savings plan.
“Thankfully, the act also applied startup tax credits retroactively for small employers who joined a multiple employer plan … or a pooled employer plan, regardless of how long the arrangement had been in place,” wrote Jim Kais, head of group retirement at Equitable, in an emailed statement.
Several experts note that tax credits are not the only thing driving up small plan adoption.
“What we’ve seen over the last three to five years with SECURE 2.0 is … broadening of access [to retirement plans],” says Richard Tatum, president of workplace savings at Vestwell. “You see state mandates … helping people access savings programs a lot better. Then when you couple that with the tax incentives from SECURE, it’s really been a great opportunity for small businesses.”
About half of U.S. states, have either proposed or passed legislation mandating that employers offer their workers retirement savings programs set up through payroll deductions, ranging from California among the oldest plans to Maryland among the newest. In most cases, the applicable businesses must either enroll in a state-run program or sponsor a private plan instead.
“If you’re in a state where the law says you need to offer it, you need to offer it,” Keep says. “Then the question becomes [a state plan or a 401(k) plan]. The [401(k) plan] is a better deal for the employee and, oftentimes, for the employer.”
Tax credits help employers pursue that 401(k) route. Gottfried agrees with Tatum, crediting increased small plan adoption to a mix of factors.
“The combination of state mandates and the SECURE tax credits have been incredibly powerful in driving adoption in this historically underserved segment,” Gottfried says. “So when you … have that ideal vector of: it is low or no cost to my company, but it is high value to my employees, that’s a pretty easy decision [for employers] to make.”
When asked how his client makeup has changed since the enactment of SECURE 2.0, Keep says SECURE 1.0 did not initiate a proportional change in the kinds of employers starting a retirement plan, but SECURE 2.0 is “incentivizing those small business to actually establish a plan.”
Gottfried says, “I think what you would see on any 401(k) provider who serves small-to-medium sized businesses is that the median employee count has decreased, year-over-year, as a result of how many small businesses have entered the market.”
But Gottfried notes that the reduction in employee count among companies offering 401(k)s is part of a broader employer trend. The vast majority of employers in the U.S. are small businesses, and “the vast majority of small businesses prior to the SECURE Act [of 2019] did not offer retirement savings,” Gottfried says.
After the Phaseout
The retirement plan industry is left with questions about what will happen to small employers when tax credits expire after five years.
“I think the momentum around retirement savings is going to be sustainable,” says Vestwell’s Tatum. “Even as the incentives phase out … offering a workplace savings program is going to be a table stakes item and not just a ‘nice to have.’”
For Tatum, however, it is not only the tax credits that determine a small employer’s future course.
“SECURE 2.0 helped create the right environment for adoption, but it’s the right infrastructure that ensures these plans are maintained and deliver a long-term value for both employers and savers.”
Paychex’s Keep adds that another factor keeps employers on their heels: the desire to attract and retain top talent.
“The war for talent is real,” Keep says. “If I, [ as an employee,] have competing offers on the table [from] two small businesses, [and] one offers an employer match and the other doesn’t … that can make my decision for me.”
Betterment’s Gottfried and Equitable’s Kais agree with Keep on the power of recruitment, and both hold out hope for an extension of the incentivizing tax credits for plan sponsors. However, Gottfried is particularly cautious.
If an employer is competing for talent, “it becomes a much more difficult calculus to say, ‘We can afford [not to] offer this,’” Gottfried says. “[But] I think there’s no question that if the tax credits did expire, it would result in a slowdown of growth for small businesses newly entering the 401(k) space … [the growth] will be meaningfully lower.”
