Seyfarth Synopsis: On Friday, March 27, 2020, in light of the far-reaching impact of coronavirus, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes some relief provisions for tax-qualified defined benefit pension plans. Click here to review the executive compensation provision contained in the law; click here to review the health and welfare plan provisions; and click here to review the defined contribution plan provisions.
The CARES Act includes two provisions aimed at providing some relief to companies that sponsor tax-qualified defined benefit pension plans.
- Delay of Required Contributions. Under the CARES Act, a company can delay to January 1, 2021 any required contributions otherwise due in 2020 to meet funding standards. This provision will provide cash conscious companies with the ability to conserve their cash in 2020 by delaying contributions to the plan until January 1, 2021. Any contributions that are delayed are increased by interest for the period beginning on the original due date to the actual payment date.
- Benefit Restrictions Relief. Normally, a pension plan must impose restrictions on certain benefit distributions (for example, lump sums) when the plan’s funding status falls below 80 percent. The primary intent of these restrictions is to prevent retirement-eligible participants from drawing down a large portion of the plan’s assets at the expense of participants who are not yet retirement-eligible and unable to draw benefits. Recognizing the current, unique circumstances that could adversely impact a plan’s funded status (such as historically low interest rates), the CARES Act provides that a pension plan can use its funding status for the plan year ending in 2019 when determining whether it must impose benefit restrictions for plan years which include calendar year 2020.
Please stay tuned to our Beneficially Yours blog as we intend to provide updates as events unfold. In the interim, we hope that everyone is staying safe and secure as we all navigate these uncharted waters.