SECURE 2.0 Act – Section 111. Application for Credit for Small Employer Pension Plan Startup Costs to Employers Which Join an Existing Plan

SECURE 2.0 Act – Section 111. Application for Credit for Small Employer Pension Plan Startup Costs to Employers Which Join an Existing Plan

As discussed in our article on Section 102 of the SECURE 2.0 Act (SECURE 2.0), Section 45E of the Internal Revenue Code provides a tax credit that helps eligible smaller employers alleviate the administrative costs incurred in establishing a retirement plan for its employees. 

Certain smaller employers may not have received the same benefit when joining a multi-employer plan (MEP) as they would have if they were to have set up a separate plan, depending on how long the MEP had been in existence. 

Prior to SECURE 2.0, the startup tax credit only applied for the first 3 years that a MEP was in existence. While employers that began participating in a MEP at the same time it was originally established would benefit from the credit for the full 3 years,  an employer that joined a preexisting MEP would not have been be able to take advantage of the credit to the same degree.

For example, if the MEP had been existence for 1 or 2 years when a small business joins, the small business may have only been able to claim the credit for 1 or 2 years.

Section 111 of SECURE 2.0 aims to fix this issue so that employers joining a MEP (which includes pooled employer plans (PEPs)) are eligible for the Section 45E plan start-up costs credit for all 3 years, regardless of how long the MEP has been in existence. Section 111 is effective retroactively for taxable years beginning after December 31, 2019. This enables taxpayers who formed or joined new MEPs/PEPs in 2019, 2020, and 2021 to file amended returns and retroactively claim a credit for those earlier years applying the rules of Section 45E. 

Presumably, taxpayers looking to file refunds for 2019 are running up against the statute of limitations to file amended returns for 2019 and should discuss this issue with their tax advisors as soon as possible. 

If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].

This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.

About SECURE 2.0

SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.

This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.

The full text of SECURE 2.0, including provisions that affect pension and cash balance plans, may be found on pages 2,046-2,404 of the omnibus Consolidated Appropriations Act of 2023.

About Schneider Downs Retirement Solutions

Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations. 

Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.