Retroactive Plan Adoption for New Qualified Employer Funded Plans Under the SECURE Act

Posted on in categories General , News Update

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and the Internal Revenue Service (IRS) extended the deadline for employers to adopt new qualified retirement plans that are effective for the preceding taxable year until the due date of the employer’s tax return for that year (including extensions). This provision of the SECURE Act only applies to plans adopted for taxable years beginning after December 31, 2019

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This is a considerable change from the IRS’s original stance that employers had to adopt a plan before the end of its taxable year. This eliminates the time pressure for employers to decide if they can afford a new retirement plan. Now any plan that is adopted before the due date of an employer’s tax return (including extensions) is considered to have been established the last day of the tax year.  

For example: An employer who wishes to implement a plan for calendar year 2021, may adopt a new retirement plan by the due date (including extensions) of the filing of its 2021 tax return, but the plan is treated as having been adopted as of the last day of 2021.   

Please note that this new deadline is only for qualified plans that are employer-funded such as profit-sharing plans and cash balance plans. This does not include 401(k) deferral elections since elective deferrals may not be implemented retroactively.  

Filing Deadlines for Calendar Year Businesses 

Tax Status Filing Deadline Extended Deadline 
S-Corporation March 15th September 15th 
Partnership March 15th September 15th 
C-Corporation April 15th October 15th 
Sole Proprietorship April 15th October 15th 

Form 5500 Filing Requirement  

In August of 2021, the IRS issued an Employee Plan News bulletin that states that retirement plans that are retroactively adopted can skip the first year’s Form 5500 filing. Plans that are retroactively adopted become effective as of the last day of the first plan year, creating a one-day plan year that would normally require a Form 5500 filing. However, the IRS is allowing plan sponsors to file their first Form 5500 for the 2022 plan year, indicating on the filing by checking a box, that the plan was retroactively adopted. 

Benefits of Retroactive Plan Adoption 

Not only does this new extension give employers additional flexibility but it also has other benefits that include: 

  • Allows an employer to adopt a retirement plan in the current year for the prior tax year, allowing a tax-deductible contribution. 
  • Allows extra time for a company to decide if they can afford to retroactively adopt a new qualified plan 

Implementing a new retirement plan has many benefits for a company and its employees. For employers, contributions are tax deductible, assets in the plan grow tax deferred and retirement plans can attract and retain key employees.  

If you have questions regarding retroactive plan adoption under the SECURE Act, your trusted ABG Southwest representative is available to help. Contact Us.