Plan Adoption & Secure Act

I just wanted to make sure of the timing.  I know the Secure Act now allows you to adopt a plan up until the filing of your tax return, as opposed to December 31 of the Plan Year.  Is that in effect for employers looking to start a Plan for 2019 or does it begin with Plans starting 01/01/20?

I believe it's 2020 Plan Years, but I wanted to be sure.

Thanks!

27 minutes ago, Stash026 said:

start a Plan for 2019

Nope, it becomes effective for tax years beginning after 12/31/2019 - so 2020 plan years as you suspected.

2 hours ago, CuseFan said:

Nope, it becomes effective for tax years beginning after 12/31/2019 - so 2020 plan years as you suspected.

Absolutely correct.

Does it apply only to 401(a)/401(k) plans, or are 457(b) and 403(b) plans included?

5 minutes ago, Ellie Lowder said:

Does it apply only to 401(a)/401(k) plans, or are 457(b) and 403(b) plans included?

It's only for the employer contribution part of any plan. Any participant deferral plan still has to be adopted in advance of the first payroll deduction.

Yes, I know - but does it apply to employer contributions to 403(b) and 457(b) plans, or just 401(a)/401(k) plans?

Just an FYI but there is at least one practical issue that has been brought up by various people.  This rule would seem to allow you to start a plan as late as 9/15 as that is the due date of the corporate tax return for a 12/31 PYE.  But if you didn't know that until around that point you will not have filed an extension on the 5500.    So you would be setting up a situation where you have a late 5500 for the year of inception.  That struct me as something that isn't obvious at first but true. 

28 minutes ago, ESOP Guy said:

Just an FYI but there is at least one practical issue that has been brought up by various people.  This rule would seem to allow you to start a plan as late as 9/15 as that is the due date of the corporate tax return for a 12/31 PYE.  But if you didn't know that until around that point you will not have filed an extension on the 5500.    So you would be setting up a situation where you have a late 5500 for the year of inception.  That struct me as something that isn't obvious at first but true. 

Good point.  You could use the corporate extension to 9/15 anyway.  And whatever happens, it will be our fault.

1 hour ago, ESOP Guy said:

Just an FYI but there is at least one practical issue that has been brought up by various people.  This rule would seem to allow you to start a plan as late as 9/15 as that is the due date of the corporate tax return for a 12/31 PYE.  But if you didn't know that until around that point you will not have filed an extension on the 5500.    So you would be setting up a situation where you have a late 5500 for the year of inception.  That struct me as something that isn't obvious at first but true. 

Presumably in that case the taxpayer would be on extension and you could use the taxpayers automatic extension no? But you might have a 9/15 filing deadline in some cases instead of 10/15. I mean assuming FYE=CYE=PYE.

6 hours ago, ESOP Guy said:

So you would be setting up a situation where you have a late 5500 for the year of inception.

Marking the 5500 as filing under "special extension" is the only thing I can think of that would not trigger IRS love letters...  

We have plenty of time for guidance though.

9 hours ago, ESOP Guy said:

Just an FYI but there is at least one practical issue that has been brought up by various people.  This rule would seem to allow you to start a plan as late as 9/15 as that is the due date of the corporate tax return for a 12/31 PYE.  But if you didn't know that until around that point you will not have filed an extension on the 5500.    So you would be setting up a situation where you have a late 5500 for the year of inception.  That struck me as something that isn't obvious at first but true. 

Yes, the late 5500 issue will be an issue, but the hope is that the IRS will provide some sort of exception for plans that are adopted under the new SECURE rules but after the first 5500 would normally be due.  It is illogical that Congress would provide such a new option but maintain a "gotcha" that makes you violate other rules just by using this rule.  We will be watching for IRS guidance for sure, but a special first year due date when a plan is adopted in the extended due date period will probably be the solution.  Stay tuned.....

Well, for whatever it's worth, I see no need to give such late adopters an extra break on filing deadlines.  The whole thing (allowing plan adoptions after the end of the year) is a dumb idea IMO and smacks of the "oh poor baby" mentality pervading our country.  Like the world's gonna end because someone didn't have the foresight to establish a plan by the end of the year.  Good grief.  I've never had a problem shrugging my shoulders and saying "no you can't do that" to a host of ideas/questions.  It's putting another straw on the back of the complexity camel.

Worst case, the DFVC filing penalty would just have to be included in the plan setup costs for these late adopters.

About Ellie Lowder’s query, SECURE § 201 amends Internal Revenue Code of 1986 § 401(b).

I don’t read it to relieve whatever written-plan condition applies under § 403(b) or § 457(b).

6 hours ago, Bird said:

Well, for whatever it's worth, I see no need to give such late adopters an extra break on filing deadlines.  The whole thing (allowing plan adoptions after the end of the year) is a dumb idea IMO and smacks of the "oh poor baby" mentality pervading our country.  Like the world's gonna end because someone didn't have the foresight to establish a plan by the end of the year.  Good grief.  I've never had a problem shrugging my shoulders and saying "no you can't do that" to a host of ideas/questions.  It's putting another straw on the back of the complexity camel.

Ed, when I read this response, I was expecting a smiley face at the end, but it's not there!  So am I to take it that you are actually serious?  Allowing qualified plans to be adopted after the year is over (the same rule as for IRAs or SEPs) has been a long time coming, and is very much welcome and makes perfect sense. And at least, Congress agreed with that.  So we no longer have to say "no, you can't do that" and I think that is a much better answer than "we can backdate the document" (BIG SMILEY FACE HERE) of the correct answer of "no you can't".  The 5500 issue is trivial and will most likely be resolved in IRS guidance.  FWIW.

I was serious.  A bit crazed maybe, but serious.  I'm sure ASPPA pushed for this (certainly Congress isn't going to come up with it on its own).  Maybe it's all because I don't like change but I just don't get it.  Yeah we're covering more people, blah blah but I find it trivial.  We've quickly recognized that this will be an opportunity to add a new general-tested plan that will give more favorable allocations to owners who have a poorly designed existing plan.  Higher contributions for owners but probably not for others.  Trillion dollar deficits don't matter until they matter.