Seyfarth Synopsis: As Seyfarth has blogged about on multiple occasions [here, here and here], the CARES Act provided relief for qualified plans as a result of COVID-19. With respect to qualified defined benefit pension plans, the CARES Act extended the deadline for making minimum required contributions until January 1, 2021, and permitted plans to use the prior year’s AFTAP for purposes of any funding-based benefit restrictions. With Notice 2020-61, the IRS has provided guidance on the mechanics of this contribution and benefit restriction relief. The IRS did not provide relief, however, for the fact that January 1, 2021, is a national holiday, meaning that the actual deadline for making any required contribution is December 31, 2020.
Under the funding rules for qualified defined benefit pension plans, plan sponsors generally must make any minimum required contributions 8 1/2 months after the plan year to which they relate. For calendar year plans, this means that the minimum required contribution is due by September 15th of the year following the applicable plan year. Plans with a funding shortfall for the prior plan year must also make quarterly minimum required contributions (for a calendar year plan, these contributions are due April 15th, July 15th, October 15th and the following January 15th).
The CARES Act delayed the timing of any minimum required contributions due in 2020 (both annual and quarterly contributions) until January 1, 2021, but required interest to be added to any delayed minimum required contribution. Note that because January 1, 2021, is a national holiday, the delayed contributions are actually due no later than December 31, 2020. The IRS provided no relief in Notice 2020-61 from this consequence. Congress is currently considering fixing this issue but has provided no relief yet.
IRS Notice 2020-61 addresses many other questions that plan sponsors and their advisers have raised, including how interest is calculated on the delayed contributions. Notably, the IRS confirmed that:
- The extended contribution due date does not apply to multiemployer plans, money purchase pension plans or fully insured defined benefit pension plans.
- Plan sponsors that contribute more than the minimum required contribution and do so by January 1, 2021 can apply such excess to 2020 contributions (due for 2019 funding requirements)
- The actuary cannot reflect a contribution on the Schedule SB for the Form 5500 that is made after the actuary signs the form. Thus, if the plan sponsor delays contributions beyond when the plan’s actuary signs Schedule SB, the plan sponsor must file an amended Form 5500 with an amended schedule if the contributions will apply to the reporting year. The delayed reporting of these contributions may also require an amended plan audit and plans should consult with their auditors on how to reflect the delayed contributions for purposes of the annual audit. For calendar year plans with an October 15, 2020, Form 5500 deadline, this means that plans taking advantage of the contribution delay will need to file amended Form 5500 returns and the IRS has provided no relief from this administrative complexity.
- Plans can elect to apply the prior year’s AFTAP funding percentage for purposes of determining whether funding-based benefit restrictions apply by following the same procedures used to apply funding balances, and the guidance provides details on the impact of such an election. This relief will be most impactful for plans that had plan years beginning in the spring of 2020 and experienced significant asset volatility related to COVID-19 at the start of the plan year.
- The delayed contribution deadline also applies to elections to increase a prefunding balance or to use a prefunding balance or funding standard carryover balance to offset the minimum required contribution for that plan year.
As a final note of caution, the PBGC has not extended similar relief for when contributions are considered made for purposes of calculating any final PBGC premiums due in 2020.
The funding rules are complex and we have only provided a high level summary. If you have any questions, please contact your actuary or Seyfarth Employee Benefits attorney.