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They are new for 2022 Groups of Plans (GoPs) or as the Department of Labor (DOL) has begun to refer to them for reporting purposes, “Defined Contribution Group Plans.” The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, Pub. L. 116–94, created GoPs, effective for the 2022 plan year. Technically, it is a simplified mechanism for filing a single Form 5500 information return for a collection of defined contribution plans that have the same overall set up.

If you are thinking Multiple Employer Plan (MEP) or Pooled Employer Plan (PEP), think again.  Generally, MEPs and PEPs allow more than one employer to participate in a single retirement plan. In contrast, GoPs allow several employers each with their own defined contribution plan to file a single Form 5500 for the collection of plans as long as they have the same trustee, named fiduciary(-ies), administrator, plan year and investment options. In theory, the appeal of GoPs is that a group of employers (unrelated or related) can keep their own plans and combine to gain economies of scale by collectively negotiating better pricing for administration and investment services, plus have simplified reporting.

While the industry received some information on GoPs in the Department of Labor’s (DOL) proposed Form 5500 changes released in September 2021, more was anticipated in the DOL’s final Form 5500 regulations and news release issued December 29, 2021. Disappointingly, no further guidance was included just a promise that the consolidated filing option for certain groups of defined contribution retirement plans would be the subject of one or more later final notices.

Of utmost interest is whether the DOL will or won’t apply the Independent Qualified Public Accountant audit requirement when a GoP collectively includes 100 or more individual participants. If the agency does, much of the glow will be off GoPs.

With 2021 behind us, many business owners are discovering that, despite COVID-related challenges, they had a good year from a business perspective.  That means it would be great to have additional tax deductions and credits to help reduce the business’s overall tax liability.

Fortunately, certain retirement plan-related deductions and credits are still available for 2021 – that’s right after the fact for establishing and funding qualified retirement plans they set up in 2022 for 2021. Let’s explore how business owners can potentially reduce their business’s tax bill with qualified plan deductions and credits.

First, businesses may fully deduct amounts contributed to qualified plans and these contributions may be made up to the due date, plus extensions, of their 2021 tax return filing date. But what if the business hadn’t established a qualified plan by the end of 2021? What options do these business owners have?

Fortunately, the rules for establishing retirement plans have changed as a result of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. Under the SECURE Act, for 2020 and later tax years, a business has until its tax filing deadline, plus extensions for a particular tax year, to set up a plan. The plan establishment deadline is tied to the type of business entity and its associated tax filing deadline as illustrated below.

[Note: Simplified employee pension (SEP) plans have historically followed the above schedule; and special set-up rules apply for safe harbor 401(k) plans.]

Establishing a plan retroactively can be particularly appealing if the business owner establishes a defined benefit plan, such as a cash balance plan.  Cash balance plans can allow qualifying business owners to contribute and deduct hundreds of thousand dollars to such an arrangement under the right circumstances. As noted previously, this can be done retroactively for the 2021 tax year. With the help of their tax advisor, business owners can determine if a cash balance plan is right for them.[Note: Simplified employee pension (SEP) plans have historically followed the above schedule; and special set-up rules apply for safe harbor 401(k) plans.]

In addition, small businesses (with fewer than 100 employees) may also be eligible for additional tax credits for setting-up retirement plans and/or adding an automatic enrollment feature. Let’s explore some of the incentives and the plan establishment process.

The “Startup Credit” for new plans is $5,000, available for the first three years the plan is in existence and offers real benefits by freeing up tax dollars for other important business purposes. The credit was greatly improved as part of the SECURE Act, effective January 1, 2020 (increasing the maximum credit from $500 to $5,000). It is intended to encourage business owners to establish retirement plans by helping make the plan more affordable during the startup process. In addition, the business receives full tax deductions for all contributions made to the plan.

On top of that, if a business owner elects to add an automatic enrollment feature to the plan, an additional $500 credit (for the first three years) is also available to the company. The automatic enrollment feature calls for newly eligible participants to be enrolled automatically in the plan with a specified default deferral rate. The IRS provides additional details about the startup and auto deferral credits here. Consider the following example.

Retirement plan availability and coverage has become a public policy concern in recent years. More people need to be saving additional amounts for retirement. Employer- sponsored retirement plans are effective in getting individuals to save for retirement. Thus, from a policy perspective, the goal is to help and encourage smaller employers to offer retirement plans to their employees.

Clearly, in addition to benefiting employees, retirement plan deductions and credits can be helpful in controlling overall tax liability and should be given serious consideration. The next step for a business owner who is contemplating starting a retirement plan is to discuss these issues with a certified public accountant (CPA) familiar with retirement plans and their complexities. When dealing with retirement plan issues, there is no “one size fits all” approach, and careful planning and execution is essential. That said, these deductions and credits often play an important role in limiting the tax liability for many business owners—and letting them keep more of what they earn.

In September, the U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) jointly announced they were seeking public comments on proposed revisions to the Form 5500 Annual Return/Report filed by private-sector employee benefit plans primarily those designed to implement provisions in the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The window for comments recently closed on November 1st.

At the same time, EBSA published a notice of proposed changes to its implementing regulations under Title I of the Employee Retirement Income Security Act (ERISA).

Such guidance has been long-awaited, but what has been proposed still leaves some uncertainty and an apparent need to proceed with caution.

As explained on the Federal Register website, Proposed Revision of Annual Information Return/Reports creates new reporting options for multiple employer plans (MEPs) using a single Form 5500, in accordance with the SECURE Act, while Annual Reporting and Disclosure aligns Form 5500 reporting regulations under ERISA with the proposed Form 5500 revisions.

The agencies also published a fact sheet summarizing the proposed changes.

One change that has received criticism from some quarters revolves around plan audits. Typically, when large employers those with over 100 workers file their Form 5500, they are required to include an independent auditor’s report, the purpose of which is to make sure that the 5500 is accurate and complete. Small employers those with less than 100 workers are exempt from that requirement.

For years, employers in the same industry have been able to form multiple employer plans (MEPs), which can help protect against risk and benefit from economies of scale. Under SECURE, beginning in January of 2021, unaffiliated employers could form a single pooled employer plan (PEP), which requires a single Form 5500 filing.

SECURE also established a new type of plan known as a group of plans (GoP), which the new proposed rules instead call a defined contribution group (DCG). That approach allows employers whether affiliated or not to file a single 5500 for multiple defined contribution plans, as long as the plans have the same trustee, administrator, fiduciaries, investments and plan year.

As with a PEP, plans in a DCG can file a single consolidated 5500. Unlike a PEP, however, the individual plans in a DCG remain subject to audit requirements.

The concern for some is that the presumed savings on audits of a DCG will, in fact, not take place. “Tumult over the proposed rules could shake up a retirement industry hungry for joint cost-saving measures, driving interest away from group plans to other pooled plan arrangements,” according to a Bloomberg Law article.

There is also the so-called 1,000/100 rule, included in SECURE, which would ask that the DOL waive audit requirements for MEPs with less than 1,000 eligible participants and no single employer with at least 100 employees.

However, September’s proposed changes did not include that provision. Instead it offered changing the rules for retirement plans with 100 or more eligible plan participants: Rather than requiring them to file an annual audit, as is now required, the new rule states that plans should only count participants with account balances.

Thus, if a large company’s plan has 200 eligible participants, but only 50 of them have actual account balances, it would not be subject to the audit.

“The regulatory impact analysis for the proposal estimates that the total number of filers would decrease as a result of the pooled employer plan and DCG reporting provisions by nearly 20,000 filers,” the DOL stated, “and that the overall reporting burdens would decrease by approximately $64.6 million annually, $63.9 million annually in audit cost savings and $700,000 annually in other reporting costs.”

If adopted, the proposed changes generally would be effective for plan years beginning on or after Jan. 1, 2022. Forms for the 2022 plan year are filed generally beginning in July 2023.

“A limited number of SECURE Act changes to MEP reporting of participating employer information and changes requiring reporting of basic identifying information for PEPs would apply to the 2021 plan year forms using an interim nonstandard attachment in place of the new Schedule MEP that would not apply until the 2022 plan year,” the DOL noted.

We believe that for the most part, these changes make sense – although, as with most things, there is room for improvement. We will report back when the DOL makes its final decisions.

Implicit in planning for retirement is looking ahead. But thanks to the SECURE Act and the Internal Revenue Service (IRS), it can pay to look to the past as well.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 allows an employer to retroactively adopt a retirement plan after the close of the employer’s taxable year. For example, a calendar year taxpayer can adopt a plan in 2021 for last year (2020) as late as Oct. 15, 2021, assuming that that is the extended due date for filing the employer’s tax return for 2020. Under such a scenario, the plan is assumed to be adopted as of the last day of the employer’s prior tax year – i.e., Dec. 31, 2020.

The provision applies to plans adopted for taxable years beginning after Dec. 31, 2019.

This presents a great opportunity for some companies – particularly small businesses – in that it may help save them serious money in taxes by providing much-needed financial flexibility. If a given business made hundreds of thousands of dollars in calendar year 2020, they could potentially save anywhere from 30% to 50% in taxes by going the retroactive route.

In the past, we often saw clients rushing in November and December to sign their new plan documents before the Dec. 31 deadline. Now that pressure is off.

The clock is of course ticking – but it is not too late to take advantage of the SECURE Act provision. Indeed, according to reports, a significant number of employers took advantage of the provision earlier this year, following the close of their 2020 taxable years.

Even so, there had been some uncertainty over the how’s and why’s of completing Forms 5500 for the 2020 plan year. Form 5500, which must be filed electronically along with the appropriate schedules and attachments, is required for most employee benefit plans with 100 or more participants and small plans that don’t qualify for an exemption.

On Aug. 6, the IRS issued additional guidance to address that issue.

That guidance states that if, for example, 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 decides 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 for the plan year that begins during the employer’s 2020 taxable year.

Instead, the agency said, the first Form 5500 required to be filed with respect to the plan will be the 2021 Form 5500. (Note, however, 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.)

In addition, 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, as well as 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,” the IRS said.

Retro-adoption could be a good thing for many small businesses contemplating starting a new retirement plan. Consult with a reputable financial advisor for more details.