Bank of America Corp., which launched a 401(k) plan for small businesses as early as 2012, also did so because more than 3 million of its small-business customers were asking for them, said Erin Donnelly, managing director. The plan uses PAi as the record keeper and Morningstar Investment Management LLC as the 3(38) investment adviser at Bank of America’s Retirement and Personal Wealth Solutions Group in Pennington, NJ.
Its Merrill Small Business 401(k) helped Bank of America broaden its suite of small-business retirement plan options, including SIMPLE (Savings Incentive Matching Plan for Employees) and SEP (Simplified Employee Pension) individual retirement accounts, she said.
Ms. Donnelly declined to say how many small employers use the Merrill Small Business 401(k) plan or how much it has in assets, saying the bank does not disclose those numbers publicly.
Bank executives are excited about the growth of their 401(k) plan offerings, given strong customer demand and enhanced tax credits enacted with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in December 2019. There is also optimism about several additional incentives being considered as part of three legislative bills widely referred to as Security 2.0.
The current tax credit, which took 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 an 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 of the Stronger Retirement Act of 2022, which passed the House in March, the tax credit would be sweeter for employers with 50 or fewer employees, the least of the market sectors that offer retirement plans. For, according to industry experts. The law will cover 100% of their retirement plan startup costs, up to an annual cap of $5,000. In addition, they will receive an additional credit for contributions of up to $1,000 on behalf of each employee for five years. The proposed credit would offset 100% of employer contributions for the first two years and then gradually decline to 75% in year three, 50% in year four and 25% in year five.
For example, an employer contributing $1,000 to each of its 20 employees 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. .
Anticipated new credits, coupled with strong demand, have prompted bank executives to set ambitious growth targets. Mr. Zugaro of Huntington is looking to add 100 to 200 plans a year for the next five years. JPMorgan’s Mr. Cote, meanwhile, aims to become the leading 401(k) provider in the small plan market under $5 million over the next 10 years.
Executives are optimistic about their growth potential despite competition from record keepers, robo 401(k) providers and even pooled employer plans, which allow employers to better value their plan assets.
“Depending on the size of the plan and some other factors, fees may be lower in creating a pooled employer plan, but not in every case,” said Bank of America’s Ms. Donnelly.
With a strong built-in base of small-business customers, bank executives believe they have a significant strategic advantage over their non-bank rivals.
“There is room for many solutions,” said JPMorgan’s Mr. Cote. “The small plan market has historically been underserved, so I think the emergence of new competitors is a healthy thing.”