Deadlines for 401(k) Adoption – Including SECURE Act Changes

On December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law. The legislation made many significant retirement plan changes, including later deadlines for adopting a new 401(k) plan or amending a normal 401(k) into a safe harbor plan. For most small businesses, these changes took effect January 1, 2020. 

Since the SECURE Act became law, we’ve received lots of questions from small business owners about the new 401(k) adoption deadlines. Below is a FAQ with answers to the most common questions – including major deadlines for 2022 and 2023. 

What is the deadline for adopting a new safe harbor 401(k) plan?

In general, the first year of a new safe harbor 401(k) plan must be at least 3 months long – to give all plan participants the opportunity to make salary deferrals. That means the deadline for employers to adopt a new calendar-based plan is October 1.

What is the deadline for adopting a new normal 401(k) plan?

The SECURE Act extended the deadline for employers to adopt a new plan from the last day of the tax year until the due date of that year’s tax return (including extensions). That means the deadline for employers to adopt a new calendar-based plan will depend upon their tax status:

While this change would not give employees more time to make salary deferrals, it would give employers more time to decide whether or not they want adopt a new plan in order to make a year-end profit sharing contribution.

To illustrate, an S-Corporation is reviewing its 2022 tax situation with its accountant on June 15, 2023. The accountant informs the S-Corp that it has sizeable income subject to taxes and the S-Corp may want to consider ways to reduce its taxable income. The S-Corp can adopt a plan which allows non-elective (i.e., profit sharing) contributions retroactive to January 1, 2022. Any non-elective contributions made for 2022 should reduce the S-Corp’s taxable income. At the time of adoption (June 15, 2023), the S-Corp may also allow a 401(k) feature in the plan, but salary deferrals are only permitted on compensation paid after the adoption date.

What is the deadline for amending a normal 401(k) into a safe harbor plan?

A formal plan amendment must be adopted to convert a normal 401(k) into a safe harbor plan. The deadline for adopting this amendment will depend upon the type of safe harbor contribution to be made.

• Safe harbor match – amendment deadline is the last day of year preceding the plan year in which the plan will be safe harbor.
• However, match-based safe harbor plans must distribute a safe harbor notice to participants sooner - 30-90 days before the start of the plan year. The SECURE Act eliminated the notice requirement for nonelective-based safe harbor plans. 
• Safe harbor nonelective – The SECURE Act made the amendment deadline much more flexible for these plans. It’s based on the timing of the amendment.
• The usual 3% nonelective contribution is required if the safe harbor amendment is signed before or up to 30 days before the close of the plan year. To illustrate, an existing normal 401(k) plan using a calendar plan year can decide in November to be a safe harbor 401(k) plan for that year with a nonelective contribution of 3% of compensation
• An increased nonelective contribution of 4% of compensation is required if the safe harbor amendment is signed within 30 days before the close of the plan year up to the last day of the following plan year. To illustrate, an existing normal 401(k) plan using a calendar plan year receives its 2022 testing results in March, 2023. The results are not good as the plan is failing the ADP test badly. The employer now has another correction option in the ability to amend the plan to be safe harbor for 2022 as long as a nonelective contribution of 4% of compensation is provided.

When can I adopt a new 401(k) plan if I currently have a SIMPLE IRA in place?

All SIMPLE IRAs operate on a calendar year basis. Replacing one with a safe harbor or normal 401(k) plan takes some planning due to the following IRS rules:

• A SIMPLE IRA must be the sole retirement plan in effect for the calendar year.
• SIMPLE IRAs can’t be terminated mid-year.
• For a SIMPLE IRA to be terminated at year-end, participants must be notified at least 60 days in advance (November 2).

Due to these rules, the soonest you can implement a new 401(k) plan is the January 1 following the year your SIMPLE IRA is terminated. 

What are the major 401(k) adoption deadlines for 2022 and 2023?

Given the various 401(k) adoption deadlines, it can be easy to miss one. Seeing a timeline can help you avoid that. Below are the 2022 and 2023 deadlines for calendar-based plans.

2022 Plan Year

2023 Plan Year

Don’t miss out on the 401(k) you want! 

Safe harbor 401(k) plans are the most popular type of 401(k) used by small businesses today. However, they’re not the best option for every small business. Sometimes, a normal 401(k) plan can do a better job meeting certain goals and budgets. If you’re a business owner, you owe it to yourself to make an informed choice. 

Understanding the 401(k) adoption deadlines can help you adopt your choice as soon as possible.