When retirement policymakers sought to incentivize small businesses to begin offering retirement plans in an effort to help close the coverage gap, they did so in part by creating greatly expanded federal tax credits that would offset their cost in providing those plans.
But research has found fewer than 6% of eligible employers are properly claiming the tax credit—and that’s a problem that doesn’t sit well with retirement plan advisor Will Hackler, AIF, the “401(k) Fix-It Guy” who is the Managing Partner at Integrated Pension Services. Hackler says there’s a real awareness problem regarding the tax credit, and that advisors need to step in to make sure eligible firms (and their tax-filing CPAs) know about and take advantage of a program intended specifically for them.
In this episode, Hackler explains the tax credit, the problem and potential solutions.
A High-Value Prospecting Hook: With fewer than 6% of eligible small businesses claiming their retirement startup tax credits, advisors have a massive opportunity to use credit audit education as a primary prospecting tool.
Bridging the CPA Gap: Advisors can win long-term loyalty from small business owners by stepping in to coordinate directly with the firm’s tax-filing CPAs, who are often unaware that a plan has been established or how to navigate IRS Form 8881.
Expanding the Target Market (51–100 Employees): Advisors should look beyond micro-businesses; companies with 51 to 100 employees are still eligible for a 50% credit, providing a wider prospecting pool for mid-sized plan opportunities.
The Opportunity for Year 2 & 3 Retention: Because many eligible businesses drop the ball on continuing to calculate and claim their credits in consecutive years, advisors can provide sustained value by offering ongoing multi-year compliance reviews.
Advisors can leverage the startup plan tax credit by offering complimentary credit audits to small businesses. Since over 94% of eligible firms fail to claim these incentives, pointing out this missed capital—and offering to help their CPA file IRS Form 8881 properly—is a powerful differentiator to win new clients.
While the CPA files the paperwork, the advisor acts as the orchestrator. Because CPAs face immense compliance workloads, the advisor provides the direct value-add by extracting the necessary employee data and running the calculations required to complete the 15-question form.
Yes. Advisors can target businesses with 51 to 100 employees, as they are fully eligible to claim 50% of the startup plan tax credit. This expands an advisor’s prospecting reach beyond micro-employers eligible for the 100% credit.
Will Hackler: [00:00:00] if we, as an industry, don’t push this to the CPAs, to the employers, it’s just not gonna get there.
Brian Anderson: This is 401Specialist editor-in-chief Brian Anderson, and this is the 401Specialist podcast. Today we’re gonna talk about a big avoidable problem, the fact that very few small businesses who start a retirement plan are actually taking advantage of the tax credit specifically meant to offset their cost for doing so. This is an issue that has provoked the ire of high-profile retirement plan advisor Will Hackler, who mentioned it to me at the NAPA Summit down in Tampa earlier this spring, and we wanted to get his take on the issue and what can be done to fix the problem.
Will, the fix-it guy, is managing partner at Integrated Pension Services, where he focuses on 401k and pension plan design, compliance, and administration for corporations. He’s also been recognized as a top advisor by Participant Outcomes, by 401Specialist, and created the Integrated 401k, a system to align employee retirement plans with a company’s [00:01:00] broader wealth accumulation goals.
Will, welcome back to the 401Specialist podcast.
Will Hackler: Thanks for having me today, Brian. I appreciate it. Yes, and thank you for, you know, grabbing you by the collar at NAPA in Tampa, telling you we need to talk about this.
Brian Anderson: You brought up this issue of, uh, small businesses not taking advantage of the startup tax credit when we spoke down at NAPA.
I remember you being very passionate about it. But before we get into what can be done to fix the problem, can you start out by reminding us about the specifics of the tax credit, uh, like who qualifies for it, how much it’s worth, what SECURE Act, SECURE 2.0 did to enhance
Will Hackler: Yep. So the IRS or Congress has given us a little bit of startup credit.
Actually started back in the early two thousands. The first, you know, form for it, the first 8881 form, which I’ve been asking the industry about, like, “Do you know what the form is?” And everybody just gives me blank stares. But it’s been around since [00:02:00] 2002. Back then it was a small, you know, $500, but you could get it for the first three years.
And then with the First Secure Act, they expanded it, and at that time, you got the $500 credit, but you also got, $250 per non-highly compensated up to a maximum of $5,000, and that was for the first three years. Plus, they added on an additional tax credit of $500 for the auto-enrollment at that point.
And that was for anything, you know, after 2019. What’s interesting enough is that, you know, they fixed the form in 2023, so for 2020 to 2023 you really didn’t have the full version of the form available. Obviously, there were a lot of technical stuff going on with the First Secure Act, and then certainly the expansion with SECURE 2.0, which then raised the level up to 100% of the cost, up to [00:03:00] $5,000 for the first three years And then the additional hundred percent credit on the first thousand dollars for employee employer contributions for those who are eligible, and then declining for the next couple of years.
What’s interesting on the form too, Brian, in, in preparation for us talking here, one of the, the pieces that I had forgotten but was looking at the form, even if you have fifty-one to a hundred employees, you still get the credit. You know, we talk a lot about under fifty employees, but fifty-one to a hundred’s still there, but it’s just fifty percent of that number.
So there’s still dollars that are there certainly that people are not taking advantage of.
Brian Anderson: Well, um, I know there’s been some research out there showing that despite all these attractive incentives for starting a retirement plan, a very low percentage of eligible companies are actually filing to claim it.
I think we talked about, uh, the Georgetown University Center for Retirement Initiatives found that fewer than six percent of eligible firms are claiming the credit. So what’s the problem here? Why is, uh, [00:04:00] why is the take-up rate so low? Are we dealing with an awareness problem, a complexity problem, or a combination?
Will Hackler: Yeah, it’s a little of both, Brian, and this is why I grabbed you in Tampa, right? Because we just went through… we just finished the, you know, the corporate filing season by the time, we got together in the spring there, and what I found was, no one was doing this. And I look at my own practice for it because if employers were going to do this, we would have gotten phone calls of, “How do you calculate this?”
“Where do I get this credit number?” And, we had done some preparation to try to figure out the reports we needed to download for that, to get ready for it, to be asked those questions, and no one was asking us the questions. So, you know, I think it’s You know, we talk about it in the sales process.
Here’s the credits you’re available for, here’s the things you should look for. But when it comes time for the employer to actually file for it, either they’re not letting their [00:05:00] CPA know, or the CPA has no idea where the form is, or they have no idea what the answers are. And you certainly, when you go to look at the form, there’s 15 questions on there.
The first one, qualified startup costs for it. Okay, that company might have that somehow coded in, in their, software or their, their file for, you know, filing their taxes, and the CPA might be able to see that. But then you go down the line of eligible employees. How are they calculating that eligible employees piece of it, especially with the CPA, if they don’t know that?
They don’t know what the rule is for that step of it. Then the employer contribution piece of it, right? It’s up to one thousand dollars per employee, but it’s only for those employees that made less than one hundred and five thousand dollars in the past year. So you go through those steps, those things need to be defined.
Chances are they don’t know those answers.
Brian Anderson: So, so what can be done? How can you help?
Will Hackler: I think this is step number one. We you know, we talk about it. We get [00:06:00] out there, you know, jump up and down on the table, yelling about this piece of it because they’re not getting the credit, The second piece of it is certainly having a conversation with the CPA, you know, with the client, with the CPA, making sure that they understand what this piece of it is. So certainly as advisors, as third-party administrators we have to be having the coordination with the CPA firm, making sure those things are done Then the next big component to it, Brian is really is our systems, right?
Right now, our system, in order for us to get these answers for a client, we have to pull down three different reports, really four, and then go through the math to figure out, you know, where each one of those steps are to do it. So right now, it’s a manual process for us that we have to do this. So, you know, our software providers, they also need to get on board here and help us create these pieces of it because we can’t be trying to do this for [00:07:00] hundreds of clients every, every year.
We’ve gotta have an easier way to pull these things down. And, that’s one of the complaints to my software provider “A lot of these answers are in there. Why can’t we get those, pulled?”
Brian Anderson: Right. So do you think, uh, could these tax credits become a more powerful prospecting tool for advisors that are working in the small plan market?
Will Hackler: I think it’s a great prospecting tool, and I think a lot of the employers really appreciate that on the sales side, on the onboarding piece of it, but we’ve gotta make sure we’re doing the execution side of it when it comes to the filing process.
Brian Anderson: Now, if we’re really at just about six percent of eligible firms claiming the credit, what do you think might be a realistic goal for that percentage within maybe the next five years if, uh, we do some of these things?
Will Hackler: We gotta get at least half. You know, I know there’s always gonna be some that don’t do it, right? You’re gonna get 20%, 30% of them that are not, just not gonna do it. but I think, you know, certainly we’ve got [00:08:00] to 10X this number here. It’s just, to me it’s pitiful to see this.
Brian Anderson: Yeah, it’s pretty staggering. I mean, that’s why these tax credits were created in the first place, was to, uh, you know, spur more small businesses to, offer plans. And if, uh, they’re not taking advantage of it, it just doesn’t make sense.
Will Hackler: Exactly. And there’s… Obviously, when we do our testing, we do our filings for the years, we’re giving out the reporting piece of it, but they’ve got to go pull these numbers from there.
So there’s got to be that, there’s certainly got to be help. We’ve got to come up with our, here’s how to do the, Form 8881 information, because if we, as an industry, don’t push this to the CPAs, to the employers, it’s just not gonna get there. There’s just so much work that needs to be done in other areas.
This is one tiny thing. But hey, in the first three to four years, these are significant dollars for these employers.
Brian Anderson: Are you surprised that, uh, a lot of the CPAs out there and the certified tax preparers are not [00:09:00] aware of this? Or are they, are they dropping the ball?
Will Hackler: I, I, I certainly think there needs to be some awareness on it. but I, I wouldn’t say, you know… I think the blame– I, I push more of the blame towards us as advisors and administrators to be pushing it out and educating the CPA firms on these things. There’s so much those CPA firms have to do, for compliance.
There was a quote a couple years ago when I was on a, a group with a CPA firm, just the cost of compliance now for the employer is so much money. It costs so much money for an employer to do these things, you know, to hire a professional CPA firm, the number of forms that they have to do,
the amount of forms that I have to do as a small business owner are, are… it’s staggering how many are in there, this is just one of so many, and, the CPA has to know, the one that’s filing the form too, has to know that a new plan has been established, which is tough to grab in the first [00:10:00] year or two,
Brian Anderson: Well, and then the other thing I remember we mentioned was, uh, even the firms that, the small amount of firms that are taking advantage of this tax credit, they might do it for the first year, but then they’re not following up and doing it for years two and three.
Will Hackler: Exactly. Maybe you get it, you know, the first one, but because now the formula’s changed, you know, it’s gonna be changing a little bit y-you know, the next couple of years. Is it being done right, if at all?
Brian Anderson: Okay. Well, Will Hackler, thanks so much for joining us today and providing this wake-up call on, uh, trying to fix this very preventable problem.
hope we can get the needle moved and, uh, a lot more small businesses taking advantage of these great incentives to provide a retirement plan.
Will Hackler: Yeah. You have so many of these state mandated plans that are out there, so they’re forcing the employer to do this, th- you’re gonna get a credit, Take that next step and actually apply for the credit by getting the form done. So we as an industry, we’ve got to come together to help with this problem.
Brian Anderson: All right. Well, thanks for putting the call out there, Will. Appreciate [00:11:00] it.
Will Hackler: Thanks for having me.