Optimizing Your Agency’s 401(K) Plan

• September 2, 2026

By Dave Evans

Running an independent agency is hectic. It’s understandable that the new opportunities created by the SECURE Act 2.0 for 401(k) retirement plans have not received the attention they deserve. But to an independent insurance agency owner, the agency’s 401(k) plan is more than just a benefit—it is a critical tool for tax efficiency, talent retention and personal wealth accumulation.

Here’s how SECURE 2.0 impacts 401(k) plans and other elements of plan design, as well as how agencies can simplify plan administration.

Why 401(k) Plans Matter

A meaningful retirement plan is increasingly important to employees. In fact, 91% of employees would consider switching jobs for benefits that help them reach their goals, according to Morgan Stanley’s “2026 State of the Workplace Financial Benefits Study.”

As anxiety about Social Security’s solvency shortfall increases, the importance of 401(k) plans will only grow. Legislative changes will need to be enacted by 2032 to avoid an automatic reduction of 23% across the board for current and future Social Security recipients, according to the 2026 annual reports from the Social Security and Medicare Boards of Trustees.

Meanwhile, retirement plans have shifted from solely employer-provided pension plans to 401(k) retirement savings plans, which means that employees have much more input—and responsibility—regarding how much to save, how to invest their accounts, and whether to save on a before- or after-tax basis.

Offering 401(k) plans brings benefits to agency principals as well. Aside from the important agency objective of recruiting and retaining employees, retirement plans, particularly 401(k) plans, can facilitate wealth accumulation for owners on a tax-favored basis.

One of the largest tax preferences in the Internal Revenue Code exists for retirement plans. The rules offer both a carrot—tax savings—and a stick—IRS and Department of Labor regulations that need to be navigated to avoid compliance issues down the road.

Agency owners can utilize their 401(k) plans to generate large tax deductions and defer current income tax until they retire. They can also coordinate the proceeds from the sale of the agency to level their income in retirement. But to do so requires planning well in advance of the sale of their interest.

A 401(k) plan provides agency owners with the avenue to diversify their total retirement savings by not having a majority of their net worth represented by the value of the agency. Since retirement plan assets are usually held in a trust subject to the Employee Retirement Income Security Act (ERISA), they are usually exempt from creditors. That fact can provide additional comfort in an industry with high professional liability exposure that can exceed typical errors & omissions policy limits.

Plan Design Through the Lens of 2026 SECURE 2.0

For 2026, employees of any age can contribute up to $24,500 to a 401(k) plan. SECURE 2.0 has enhanced the catch-up provision. While participants aged 50 and older can contribute an extra $8,000, the SECURE 2.0 Act allows individuals aged 60 to 63 to contribute an extra $11,250, bringing the total contribution to $35,750, not including the agency’s contribution.

For agency principals in their early 60s, this represents a four-year window for them to sprint toward retirement. At age 64, the catch-up contribution reverts to $8,000. However, there can be limitations on the amount and type of contribution that higher-paid employees can contribute, depending on the design of the plan.

Also relevant to agency owners and senior producers is that high earners must now make all catch-up contributions on a Roth—after-tax—basis. Any participant with prior-year FICA wages of $145,000 or more from their sponsoring employer must direct catch-up contributions into a Roth account. There is no longer a pre-tax option for catch-up dollars once that threshold is crossed.

SECURE 2.0 also instituted automatic enrollment for new 401(k) plans, starting participants at a default contribution rate between 3% and 10% that escalates annually unless the employee opts out. For agencies with an existing 401(k) plan, it still makes sense to consider adding auto-enrollment, as employee participation rates are consistently higher.

An additional rule is that long-term part-time employees working at least 500 hours for two consecutive years must be allowed to participate in the agency’s 401(k) plan, which could impact customer service representatives and W-2 producers. SECURE 2.0 reduced the three-year 500-hour consecutive rule to two consecutive years of 500 hours to be allowed to participate.

There are two other optional provisions that, while intriguing, have not been widely adopted due to perceived administrative complexity: pension-linked emergency savings accounts (PLESAs) and student loan matches.

SECURE 2.0 authorizes the creation of PLESAs, which are short-term savings accounts to which qualifying employees can make Roth contributions up to $2,500 and receive matching employer contributions into their 401(k).

Additionally, SECURE 2.0 allows an employer to offer a student loan match, which treats an employee’s qualified student loan payment as an eligible contribution to a 401(k) for purposes of receiving employer matching funds.

SECURE 2.0 Gives and Takes on Distribution Planning

While attention has been on the savings provisions, SECURE 2.0 has two significant provisions impacting distributions in retirement and upon death.

First, the required minimum distribution (RMD) timing has changed, with required distributions now beginning at age 73. For people born after 1959, RMD begins at 75. This extends the window during which an actively working agency owner can continue contributing. However, SECURE 2.0 and subsequent IRS regulations clarified the 10-year rule requiring the entire IRA account to be fully distributed by Dec. 31 of the 10th year following the original owner’s death unless the beneficiary was a surviving spouse, a minor child until age 21, disabled or chronically ill, or not more than 10 years younger than the decedent. Most 401(k) plans are rolled over upon termination.

The income tax implication of the new rules means that careful thought should be given to beneficiary selection by account, especially for adult children who are working. Pre-tax accounts should be targeted for lower-income beneficiaries and charities versus higher-income beneficiaries. For working beneficiaries, it may be optimal from a tax standpoint to use Roth accounts because they can let the funds accumulate for the entire 10-year period and then withdraw them at the end of the 10-year period, income tax-free.

Reducing Fiduciary Liability Through Delegation

Every agency owner who sponsors a 401(k) plan is a fiduciary in some capacity, and many are unaware of the implications. Under ERISA, anyone exercising discretionary authority over plan management or assets owes duties of loyalty, prudence and diversification to the plan participants. Breaching those duties can create personal liability. For an agency owner, taking on full responsibility for investment selection and monitoring requires time and knowledge—and it is easy to fall behind or make poor investment choices.

Fortunately, in recognition of the specialized knowledge required, ERISA allows the fiduciaries to delegate—with oversight—the investment selection and monitoring duties. They can retain a 3(38) investment manager to assume full discretionary authority over selection, monitoring and investment option replacement. This approach shifts most of the burden of investment-related fiduciary liability to the manager, as long as the fiduciaries review the 401(k) plan activity and the overall fees charged.

For agencies wanting to reduce their administrative responsibilities further, a multiple employer plan (MEP) allows several unrelated employers to participate in a single pooled plan administered by a professional provider, who typically assumes much of the fiduciary and administrative burden. An MEP can combine fiduciary delegation, reduce cost and simplify compliance into a single solution.

“After reviewing the alternatives, we established an MEP for the Big ‘I’ sponsored 401(k) plan,” says Christine Munoz, vice president of retirement and employee benefits, Big I Advantage®. “We believe it accomplishes our goals of lowering administrative costs and providing efficiencies with a common platform, while reducing our members’ fiduciary exposure.”

Simplifying Administration with Safe Harbor 401(k) Design

One drawback to 401(k) plans is the discrimination testing. A safe harbor 401(k) plan automatically satisfies the testing between highly and non-highly compensated employees, which can limit the ability of highly compensated employees to maximize their contributions.

There are two primary safe harbor 401(k) structures. A basic match typically provides a 100% match on the first 3% the employee contributes, plus 50% on the next 2%, for a maximum of 4% of pay. A non-elective contribution, usually 3% of compensation, is contributed to employees regardless of whether they contribute. And of course, the employer contribution is tax-deductible.

Safe Harbor 401(k) plans can be paired with cross-tested profit sharing, allowing higher contribution percentages for older, higher-paid owners while still providing a smaller contribution to staff. Using a cross-tested profit-sharing component on a safe harbor base can provide significant benefits to the owners and older employees.

Here are three ways that 401(k) plans can impact an agency owner’s financial strategy:

1) IRMAA tiers and mergers & acquisitions. For tax reasons, many agency sales are done on an installment basis. This generates multiple years—typically 3 to 5 years—of income while the owner may be about to enroll in Medicare. These larger payments can lead to income-related monthly adjustment amount (IRMAA) surcharges on Medicare Part B and Part D premiums.

A selling owner who continues working through the transition and remains eligible to participate in the agency’s 401(k) plan could maximize their 401(k) contributions to reduce taxable income below IRMAA’s tiers. Advance planning is needed because Medicare bases the IRMAA’s tiers on a two-year lag: 2026 income will dictate the 2028 IRMAA Medicare rates.

2) Social Security benefits. A person’s decision of when to claim Social Security benefits—between ages 62 and 70—is a key factor in the ultimate benefit amount. Under the current rules, delaying claiming the benefit increases it by 8% per year between full retirement age—66 or 67, depending on the person’s date of birth—and when they turn 70. Substantial 401(k) assets can bridge living expenses during the years between retirement and a later claiming age, allowing for a higher monthly benefit at age 70.

3) Charitable withdrawal planning. For charitably inclined owners, the qualified charitable distribution (QCD) is a tax-efficient way to make charitable contributions. Beginning at age 70 and a 1/2, an IRA owner can use a QCD of up to $111,000 per year directly to a qualified charity while being entirely excluded from taxable income, which from a tax perspective is more efficient than taking a withdrawal as income, particularly for owners who no longer itemize. If they are in RMD status, the QCD also counts toward satisfying their RMD, a double benefit. And a QCD can help with avoiding the higher IRMAA thresholds because it is not added to income, unlike a regular IRA withdrawal.

Dave Evans is a senior associate with insurance marketing firm Aartrijk, based in Fairfax, Virginia.