In the 2024 State of Manufacturing survey, one of the top three challenges identified by manufacturers was attracting and retaining a qualified workforce, which could hinder future growth. Concurrently, the retirement plan landscape has undergone significant changes with the introduction of the SECURE Acts of 2019 and 2022 (SECURE 2.0) at the federal level. On the state front, Minnesota has recently enacted legislation for a state-based retirement savings plan, the Minnesota Secure Choice Retirement Program. This program mandates that all Minnesota employers with five or more employees, who do not currently sponsor a retirement plan, must participate. Although enrollment will not begin until mid to late 2025, it is crucial for businesses to explore their options now to implement a retirement solution that aids in attracting and retaining top talent, while also leveraging available tax benefits and considering the administrative workload. Here is an overview of the retirement solutions available to ensure compliance with the upcoming legislation.

Traditional 401(k) Plans: A 401(k) plan is a qualified plan that allows employees to elect to have a portion of their wages contributed to an individual account under the plan. Generally, these deferred wages are not subject to federal income tax withholding at the time of deferral and are not reported as taxable income on the employee’s individual income tax return. In 2025, employees under 50 can contribute up to $23,500 annually, while those over 50 can add up to $7,500 in catch-up contributions. A 401(k) plan can be an attractive option for recruiting and retaining talent, especially with employer contributions, which are deductible on the employer’s federal income tax return up to certain limits.

While traditional 401(k) plans offer significant benefits to both employees and employers, they come with administrative costs and responsibilities. The plan sponsor must take fiduciary responsibility, which can add to the workload of small business owners and managers. Traditional 401(k) plans also have annual compliance requirements, including discrimination testing and tax form filings. If participant counts rise above 100, an annual audit may be required. Businesses must carefully consider whether they have the administrative capacity to manage a traditional 401(k) plan, as the penalties for mismanagement are severe. The fees for administering a 401(k) plan can vary based on the plan design, service providers, and number of participants. Additionally, there are often startup fees for new 401(k) plans; however, SECURE Act 2.0 offers tax credits for small businesses, including a credit for up to 100% of costs, capped at $5,000 per year.

Starter 401(k) Plan: A Starter 401(k) is a simplified employer-sponsored retirement plan with lower saving limits than a standard 401(k). These plans help employers offer a retirement account option by addressing two major barriers: cost and ease of administration. Total contributions for employees under 50 cannot exceed $6,000 for 2024, with an additional $1,000 allowed for those over 50. Employer contributions are not permitted.

Although the lower contribution limits and lack of employer contributions may be less appealing, these plans do not require annual testing and have less administrative burden and expense than traditional 401(k) plans. Many of the tax credits applicable to traditional 401(k) plans also apply to starter 401(k) plans.

Multiple Employer Plan: A Multiple Employer Plan (MEP) is a 401(k)-retirement plan that allows multiple employers to join a single plan sponsor. MEPs offer the same benefits and investment options as large company plans, including higher employee contribution rates and employer contribution options, but with simpler administration. They can also lead to cost savings, typically around 40% less expensive than standalone plans. Plan sponsors adopting MEPs can take advantage of SECURE 2.0 tax credits for startup costs and employer contributions. However, it is important to find the right MEP for your business needs, as many MEPs have specific vendor and employee count requirements.

Minnesota’s State-Sponsored Retirement Plan: Most details of the program’s design will be decided by the board after March 2025, including default, minimum, and maximum employee contribution rates. However, it is expected that employee contributions will be lower than those of traditional or multiple employer 401(k) plans, and employer contributions are not currently permitted.

Another important consideration is that both SECURE 2.0 and the Minnesota Secure Choice Retirement Programs require employers to automatically enroll employees into the company’s retirement plan, necessitating additional monitoring and review of new hires. For more details on automatic enrollment, check out our blog post at HERE.

Whether you have 5 or 500 employees, exploring retirement account options is a critical tool for planning and growth. Reach out to our team to discuss how retirement account options can be tailored to your manufacturing business needs.