Deadlines to adopt a new Defined Benefit Pension, Cash Balance, or 401k Profit Sharing Plan have been extended beyond December 31st

Retirement plan design continues to evolve as business owners look for ways to maximize tax efficiency, attract and retain top talent, and accelerate retirement savings. One opportunity available under the SECURE Act is the retro active adoption of retirement plans, including cash balance and profit-sharing plans. As CPAs, understanding how these provisions work is crucial for advising your clients, especially as the end of the year approaches.

Background: The SECURE Act and Retroactive Adoption: Prior to the passage of the SECURE Act in 2019, employers were required to establish qualified retirement plans, including profit sharing and cash balance plans, by the last day of the plan year. Employers were permitted to make contributions up until the tax filing deadline, however, the plan itself had to exist before the year ended.

The SECURE Act changed this requirement, by allowing employers to adopt retirement plans up to the business’s tax filing deadline, including extensions. This effectively gives businesses several additional months to evaluate their financial situation and decide whether to retroactively imple ment a retirement plan for the previous tax year.

Why This Matters for CPAs: This provision creates oppor tunities for you and your clients to re-evaluate, plan, and pivot at the end of the year. Your clients can review their taxable income at the end of the year and make an in formed decision about whether a plan makes sense.

Two of the most strategic options are:

1. Cash Balance Plans (Defined Benefit):

• Plan assets are usually invested in a trust account maintained in the plan’s name and managed by an in vestment advisor.
• Contributions are age-weighted and actuarially deter mined.
• When paired with a profit-sharing plan, business owners can accelerate retirement savings while min imizing taxable income.

2. Profit Sharing Plans (Defined Contribution):

• Flexible contribution formulas that are often paired with a 401(k), but may be offered as standalone plans with no employee deferral option.
• Contributions can be discretionary and adjusted annually.
• Maximum annual additions for 2025 are the lesser of $70,000 or 100% of compensation ($77,500 with catch-up contributions).

Key Considerations for CPAs: As CPAs, there are a few key things you should keep in mind when advising clients on retroactively adopting cash balance or prof it-sharing plans. First, be mindful of deadlines. Plans must be adopted by the tax filing deadline, including extensions. Next, consider plan design and connect with a third-party administrator (TPA) who can provide plan-specific expertise. Cash balance and profit-sharing plans must comply with various annual testing rules, and the right plan design can make compliance much easier. Be sure to coordinate with TPAs and ERISA counsel when considering your options. Finally, note the funding requirement for cash balance plans. Cash balance plans are subject to annual minimum funding obligations. Ensure that your clients have stable cash flow before recommending adoption.

The retroactive adoption provision provides a valuable planning tool. Leveraging cash balance and profit-shar ing plans allows you, as CPAs, to help clients reduce taxes, accelerate retirement savings, and maintain flexibility in their retirement strategy. With the end of year and 2026 tax season just around the corner, now is the perfect time to work with your TPA partners to begin identifying those opportunities.

For more information, contact PlanPerfect to help you iron out your business’s specific deadlines and for any third party administration needs. Our friends over at Ferenczy Benefits Law Center, our ERISA attorney specialists, have also put together a very thorough and informative resource in the Journal of Pension Benefits. Head toward the middle of the article and you’ll find a handy graph on the key provisions and tax act changes.