An invaluable provision within the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) is the ability to adopt a new plan after the end of the plan year, as late as the filing deadline for the employer’s tax return. This provision applies to plans adopted for taxable years beginning after December 31, 2019. The provision left a lingering question for employers as to whether they are required to file the Form 5500 for the 2020 plan year if a plan was adopted after the end of the 2020 but effective for 2020 (and there were no plan assets as of December 31, 2020).
This question has been answered by the Internal Revenue Service (IRS) in an August 6, 2021 publication, entitled, “Plans Retroactively Adopted After the End of the Plan Year Have No 2020 Form 5500 Filing Requirement”. In short, the IRS has advised that employers in this situation do not need to file a Form 5500, 5500-SF or 5500-EZ. Instead, the first Form 5500 required to be filed with respect to the plan will be the 2021 Form 5500. However, the plan sponsor will be required to check a box on the 2021 Form 5500 indicating that the employer elects to treat the plan as retroactively adopted as of the last day of the employer’s 2020 taxable year.
Additionally, if the plan is a defined benefit plan, the employer will be required to attach a 2020 Schedule SB to the 2021 Form 5500 or Form 5500-SF, in addition to a 2021 Schedule SB. The instructions for the 2021 Form 5500 will further explain the filing requirements for plans adopted retroactively.
The IRS also stated that the agency expects to provide similar guidance for plans adopted in 2022 for the 2021 year.
Next Step for Employers
Employers should work with their third-party administrator and/or tax professional for additional guidance on filing requirements.
