In October — as many businesses struggled with reduced staff — Damon Deru did what he had long wanted to do. He introduced a 401(k) plan for his company's 16 employees.
The founder and CEO of AdvisorPeak Inc., a Layton, Utah-based provider of trading and rebalancing software for financial advisers, was moved to launch the 401(k) partly because of a tax credit that would help offset the plan's cost.
Though many factors played into his decision, the tax credit "helped push us in the right direction," Mr. Deru said.
The tax credit — newly fattened under the SECURE Act — is available to employers with up to 100 employees for three years and is equal to 50% of their retirement plan costs, up to an annual cap of $5,000. That's 10 times the previous cap of $500.
For more and more small business owners like Mr. Deru, the more generous tax credit is getting them over the finish line, raising hopes among industry observers that the nation's retirement coverage gap may eventually begin to close. Adding to that optimism is the ongoing rollout of pooled employer plans, a new type of 401(k) offering that allows multiple employers to provide a joint — and ideally lower-cost — plan.
Indeed, some record keepers have reported heightened interest among small employers in offering retirement plans. Guideline Inc., a San Mateo, Calif.-based digital record keeper, for example, has seen sharp growth in the number of first-time plans, signing up 6,510 plans nationwide in 2020, up 43.4% from 4,539 in 2019. The pace has been equally brisk this year with the firm on track to exceed last year's total. As of April 26, Guideline had more than 3,000 startup plans, accounting for 95% of all new plans, up from 93% in 2020 and 89% in 2019.
"The increased tax credits are really impactful," said Jeff Rosenberger, Guideline's chief operating officer. "Seeing the acceleration of new plans, it's pretty clear it's a factor here."
Principal Financial Group has also seen strong gains, posting a 20% year-over-year increase in the number of first-time plans in the first quarter, an increase it attributes at least in part to the tax credit.
"The newly enhanced tax credit was certainly a factor," said Lance Schoening, Principal's Des Moines, Iowa-based director of policy. Mr. Schoening declined to say how many startup plans had joined Principal's platform in the first quarter, saying he could not share raw numbers.