By Edward “Ed” V. O’Neal, Senior Vice President and Manager, Retirement PlansPrint This Post
Most business owners are accustomed to the year-end being a hectic time, and those with employer-sponsored retirement plans have additional items they must be mindful of as we approach the end of 2021. While many folks might be ready to bid good riddance to 2021 and celebrate the arrival of 2022, retirement plan sponsors need to ensure that their plans have met important deadlines and are prepared for upcoming compliance requirements before the partying begins.
Key Year-end Retirement Plan Deadlines – As we approach the end of the year, business owners will need to remain aware of several important deadlines. Calendar year retirement plans that allow employee elective deferral contributions (i.e. 401(k)s, 403(b)s, etc.) must make those contributions by December 31, 2021. Employee elective deferral contributions intended for the 2021 tax year cannot be made retroactively. However, employer contributions to retirement plans (i.e., employer matching, profit sharing, etc.) can be made up until the tax filing deadline of the employer, plus extensions.
Impact of Recent Legislation on Retirement Plans – The past year and a half has proven very eventful for retirement plan sponsors highlighted by some of the most significant retirement legislative changes 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 in place, there are still some key components that plan sponsors need to be aware of as we close out the year, including:
- The SECURE Act’s extension of 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, so plan sponsors should always check with their designated retirement plan provider to confirm specific plan establishment dates/deadlines.
- There were additional provisions introduced through the SECURE Act, and already in effect with many qualified retirement plans, that will require formal amendments to the retirement plan document to make them permanent and official. These include changes increasing the age for requirement minimum distributions (RMDs) from age 70 ½ to age 72, permitting an in-service plan withdrawal option for birth or adoption expenses up to $5,000, and the requirement 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. Employers that took advantage of any of these optional SECURE Act provisions, or those provisions that are now required, will need to amend their plan documents to reflect these provisions in 2022 (by 12/31/22).
- The CARES Act also introduced some helpful retirement plan provisions that many employers took advantage of and now will need to amend their plan documents to officially reflect. Given the financial challenges experienced by many individuals due to the pandemic, the CARES Act permitted a number of impactful retirement plan provisions including in-service coronavirus-related distributions, increases in the maximum amount of plan loans permitted, suspension of plan loan repayments and a waiver of RMDs (during 2020). Similar to the SECURE Act, employers that utilized these CARES Act provisions must amend their plan documents in 2022 (by 12/31/22) to reflect these provisions.
Business owners are typically accustomed to handling a number of obligations prior to year-end , and matters pertaining to their employer sponsored retirement plans cannot be left to slip through the cracks. As 2022 quickly approaches, business owners will need to be diligent in adhering to required plan contribution and distribution deadlines, as well as fulfilling any plan amendment requirements associated with reliance on SECURE and CARES Act provisions. Employers 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.