Retroactively adopted plans; actuarial private letter ruling tips; updated plan corrections; latest issue snapshots

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Plans Retroactively Adopted After the End of the Plan Year Have No 2020 Form 5500 Filing Requirement

Section 201 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) permits an employer to adopt a retirement plan after the close of the employer’s taxable year (by the due date, including extensions, for filing its tax return for the taxable year) and elect to treat the plan as having been adopted as of the last day of the taxable year. This provision applies to plans adopted for taxable years beginning after December 31, 2019.

If an employer adopts a plan during the employer’s 2021 taxable year (but not later than the due date, including extensions, for filing the employer’s 2020 tax return)

• and elects to treat the plan as having been adopted as of the last day of the employer’s 2020 taxable year,
• then the plan sponsor will not be required to file a Form 5500 with respect to the plan for the plan year that begins during the employer’s 2020 taxable year (references to Form 5500 include the Form 5500-SF and Form 5500-EZ unless otherwise noted).

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.

We anticipate that similar rules will apply to the retroactive adoption of a plan pursuant to section 201 of the SECURE Act after an employer’s 2021 taxable year.

Requesting Private Letter Ruling on Actuarial Issues

The IRS identified some common errors that have been causing delays in processing requests for actuarial private letter rulings. The list of tips and common errors should help reduce processing delays and improve your experience with the actuarial private letter ruling process.

Changes to IRS Correction Program for Retirement Plans

The IRS released Revenue Procedure 2021-30 that made significant changes to the Employee Plans Compliance Resolution System, including:

• New correction options for overpayments from defined benefit plans may reduce the need to seek repayment from participants or beneficiaries who receive overpayments
• Correction period for correcting significant operational failures under Self Correction Program expanded from two to three years
• Effective January 1, 2022, the IRS will no longer accept anonymous submissions under the Voluntary Correction Program.
• Sponsors can request an anonymous pre-submission conference with the IRS beginning January 1, 2022
• Sunset for safe harbor correction of Automatic Enrollment failures extended from December 31, 2020 to December 31, 2023
• Limits on small overpayments and excess amounts that don’t require correction increased to $250

Issue Snapshots

Issue Snapshots discuss retirement plan issues and include technical resources along with audit tips and issue indicators. The most recent Issue Snapshots from Employee Plans are:

• Fully Insured 412(e)(3) Plans
• Hardship Distributions from 401(k) Plans
• 457(b) Plans – Correction of Excess Deferrals
• 457(b) Plans of Tax-Exempt Entity - Tax Consequences of Noncompliance
• 457(b) Plans - Catch-Up Contributions