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Landmines and Positives of Retroactive Plan Adoption

Practice Management

Like an onion, the SECURE Act has many layers;  one of them makes it possible to retroactively adopt a plan. An Oct. 25 session of the 2022 ASPPA Annual conference discussed some of the vagaries of what that provision facilitates. 

Mike Eaton, an actuary at Future Plan, and Matt Rustige, an Enrolled Actuary at EGPS, Inc., offered their insights on the resulting addition of a paragraph to Internal Revenue Code Section 401(b), which states that: 

If an employer adopts a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year but before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof), the employer may elect to treat the plan as having been adopted as of the last day of the taxable year.

How it Works

Eaton and Rustige outlined how retroactive adoption under the SECURE Act works.

Plans must be adopted by the due date of the plan sponsor’s tax return, including extensions. For sole proprietors and C corporations, the due date is April 15 (Oct. 15 if there is an extension) and for partnerships and S corporations, the due date is March 15 (Sept. 15 if there is an extension).

Before the due date of the tax return:

  • the plan must be adopted;
  • the trust ID must be obtained;
  • the trust accounts must be opened; and 
  • the deposit must be made.

If taxes were already filed: 

  • adoption must be before the due date, including an extension (if applicable); and  
  • the tax return must be amended, but the amendment does not have to be made before the filing due date. 

Landmines

The SECURE Act changed the due date for the adoption of the plan, but it did not change the due dates for funding. Rustige added that the SECURE Act also did not address nor change the due dates for certain notices or certifications, including:

  • AFTAP;
  • PBGC;
  • SAR/AFN; and
  • safe harbor notices.

The Form 5500 could be an additional landmine. Rustige said that just because one has the information does not mean that one is required to file the form retroactively; in fact, doing so could trigger AFN/SAR notice requirements.

Positives

There are some positive aspects to retroactive adoption, Eaton and Rustige told attendees. The benefits, they say, include:

  • more information on what is wanted;
  • increased likelihood that the client wants the plan; and
  • the ability of clients who “are late in the game” to add plans.

In addition, they said, retroactive adoption alleviates the year-end rush to adopt a plan, and could result in better coordination with tax filings.