The Internal Revenue Service has announced a significant update with regard to Form 5500 filing requirements related to the SECURE Act—less than a week after the normal Form 5500 deadline for calendar year 2020 plans.
You may recall that 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—a provision that applies to plans adopted for taxable years beginning after Dec. 31, 2019.
Employers began utilizing this provision in significant numbers beginning earlier this year (following the close of their 2020 taxable years). However, until this past week it was unclear whether and how those employers should complete Forms 5500 for the 2020 plan year. As an issue of importance to both plan sponsors and TPAs, ASPPA’s Government Affairs Committee raised this issue with the IRS and DOL, noting the need for guidance.
And then in the August 6 issue of Employee Plans News, the IRS answered the call. The IRS explains that, if the plan sponsor 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, it 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. (The references to Form 5500 include the Form 5500-SF and Form 5500-EZ unless otherwise noted.)
Instead, the IRS notes that the first Form 5500 required to be filed with respect to the plan will be the 2021 Form 5500.
The IRS explains that 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 IRS says it anticipates 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,” and notes that the instructions for the 2021 Form 5500 will further explain the filing requirements for plans adopted retroactively.
