On Friday, March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). While the legislation applies to several retirement-related provisions, we’ll focus on two key provisions applicable to single‐employer defined benefit pension plans.
Option to Delay Required Contributions
The first overarching provision delays the due date for any minimum required contributions due during 2020 until January 1, 2021. Contribution payments required in 2020 to satisfy minimum funding requirements may be delayed without penalty until January 1, 2021. Any plan sponsor choosing to delay contributions would need to make the payment on or before January 1, 2021. In addition, payments will be adjusted for interest during any period in which contributions were delayed (i.e., from the original due date through the date payment is actually made). Any such interest adjustment shall be based on the plan’s effective interest rate for the year the payment applies.
IRC 436 AFTAP Election
The second key provision allows for some plan sponsors to elect to use their Plan’s adjusted funding target attainment percentage (AFTAP) for purposes of benefit restrictions under IRC 436 for the plan year ending in 2019 as if it remained in effect for plan year(s) in calendar 2020. However, with respect to this provision, for non‐calendar year plans, there remain some unanswered questions as to the implementation and ramifications of such an election.
Should you have any questions regarding the provisions above or wish to make such an IRC 436 election, please contact your BPAS representative.
IRS Extended Deadline for Adopting Pre‐approved Defined Benefit Plans
Although not part of the CARES Act, on Friday, March 27th, the IRS announced that it was extending the April 30, 2020 deadline for employers to adopt a pre‐approved defined benefit plan and to submit a determination letter application (if eligible) under the second six‐year remedial amendment cycle. The new deadline is July 31, 2020.
William Stuart, ASA, EA, MAAA is Vice President, Chief Pension Actuary with BPAS Actuarial & Pension Services.