Bank of America Corp., which launched a 401(k) plan for small businesses much earlier in 2012, also did so because many of its more than 3 million small-business clients were also asking for them, said Erin Donnelly, a managing director in the retirement and personal wealth solutions group at Bank of America in Pennington, N.J. The plan uses PAi as its record keeper and Morningstar Investment Management LLC as its 3(38) investment adviser.
Its Merrill Small Business 401(k) helped Bank of America broaden its suite of small-business retirement plan options, which included SIMPLE (Savings Incentive Match Plan for Employees) plans and SEP (Simplified Employee Pension) individual retirement accounts, she said.
Ms. Donnelly declined to disclose how many small employers use the Merrill Small Business 401(k) plan or how much it has in assets, saying the bank does not publicly disclose those numbers.
Bank executives are bullish on the growth of their 401(k) plan offerings given the strong client demand and the enhanced tax credit that went into effect with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in December 2019. They are also optimistic about a slew of additional incentives being considered as part of three legislative bills broadly referred to as SECURE 2.0.
The current tax credit that went into effect in December 2019 is available to employers with up to 100 employees for three years and is equal to 50% of their retirement plan costs, up to annual cap of $5,000. That's 10 times the previous cap of $500.
Other incentives are in the works. For example, under a provision in the Securing a Strong Retirement Act of 2022, which passed the House in March, the tax credit would get even sweeter for employers with 50 or fewer employees, the segment of the market least likely to offer retirement plans, according to industry experts. The legislation would cover 100% of their retirement plan startup costs, up to an annual cap of $5,000. In addition, they would receive an additional credit for contributions they make on behalf of each employee up to a cap of $1,000 for five years. The proposed credit would offset 100% of employer contributions for the first two years and then fall gradually to 75% in year three, 50% in year four and 25% in year five.
An employer that contributes $1,000 to each of its 20 employees, for example, would receive a $20,000 credit for the first two years, a $15,000 credit in the third year, a $10,000 credit in the fourth year, and a $5,000 credit in the fifth year.
The anticipated new credits, coupled with strong demand, has led bank executives to set ambitious growth objectives. Huntington's Mr. Zugaro is looking to add 100 to 200 plans a year for the next five years. J.P. Morgan's Mr. Cote, meanwhile, is aiming to become a leading 401(k) provider in the small-plan market under $5 million in the next 10 years.
The executives are optimistic about their growth prospects despite competition from record keepers, robo 401(k) providers and even pooled employer plans, which allow employers to pool their plan assets to gain better pricing.
"Depending on the size of the plan and some other factors, fees could be lower in a pooled employer plan construct, but not in every case," Bank of America's Ms. Donnelly said.
With their robust built-in base of small-business clients, the bank executives believe they have an important strategic advantage over their non-bank rivals.
"There's room for lots of solutions," J.P. Morgan's Mr. Cote said. "The small-plan marketplace has been underserved historically, so I think the emergence of newer competitors is a healthy thing."