By Edward O’Neal, Senior Vice President and Manager, Retirement Plans
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As the attention for many now turns to a host of yearend activities, including Christmas shopping and finalizing New Year’s Eve plans, business owners considering establishing a retirement plan – or those that currently sponsor one – need to ensure that they meet important deadlines and are prepared for upcoming compliance requirements before any partying begins.
The past few years have seen some of the most significant and impactful retirement legislation in more than a decade. In particular, both the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act introduced a number of new retirement plan provisions focused on expanding retirement plan coverage and improving retirement readiness for employees. While many of the provisions introduced in these regulations are already operationally in place, there are still some key components that business owners need to be aware of as we close out the year, including:
- Establishing a New Retirement Plan for Your Business. The SECURE Act extended the deadline for establishing a qualified retirement plan to the business tax filing deadline, including extensions, for the intended tax year of the retirement plan. This now provides qualified retirement plans like 401(k), Profit Sharing and Defined Benefit plans with the same flexible plan establishment deadline previously enjoyed only by SEP IRAs. (Note: Plan establishment deadlines can still differ by retirement plan provider. Check with your designated retirement plan provider to confirm specific plan establishment dates/deadlines.)
- Updating Existing Retirement Plans. There were additional provisions introduced through the SECURE Act and CARES Act that are already being utilized by plan sponsors, but will require formal amendments to the retirement plan document to make them permanent and official. These include:
| SECURE Act | CARES Act |
|---|---|
| Increasing the age for required minimum distributions (RMDs) from age 70½ to age 72 | Permitting in-service coronavirus-related distributions |
| Permitting an in-service plan withdrawal option for qualified birth or adoption expenses up to $5,000 | Increasing the maximum amount of plan loans permitted |
| Expanding eligibility for long-term part-time employees (i.e., employees working at least 500 hours per year for 3 consecutive years) to participate in a qualified retirement plan | Temporarily suspending plan loan repayments |
| Waiving 2020 RMDs |
- Plan sponsors that took advantage of any of these optional provisions were required to amend their plan documents to officially reflect these provisions by December 31, 2022. However, just recently, the IRS issued Notice 2022-33 which extended the deadline for plan sponsors to amend their plan documents until December 31, 2025 (there are slightly different amendment deadlines for governmental retirement plans). Plan sponsors are still expected to have operational policies and procedures in place to accurately administrate these provisions if they are being utilized.(NOTE: IRS Notice 2022-33 does not extend the plan amendment deadline for tax-exempt 457(b) plans. Tax-Exempt employers maintaining 457(b) plans must still amend their plan documents by December 31, 2022 to officially reflect any SECURE Act or CARES Act provisions.)
As 2023 quickly approaches, business owners will need to be diligent in adhering to required plan contribution and distribution deadlines, as well as being mindful of any plan amendment requirements associated with utilization of SECURE and CARES Act provisions. Although the deadlines have been extended for some retirement plan document amendments, the expectation and hope from the IRS is that employers will use the additional time wisely, and not procrastinate. Plan sponsors should take some time to consult with their retirement plan administrator and/or retirement plan provider to ensure compliance with retirement plan deadlines and plan document amendment requirements. And please contact your financial advisor for help with any investment management or retirement planning questions.
Mutual Funds are sold by prospectus only. Please consider the investment objectives, risk, charges and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained by contacting your financial consultant. Read it carefully before investing.
Benjamin F. Edwards does not provide legal or tax advice, therefore it is also important to consult with your legal and tax professionals for additional guidance tailored to your specific situation.