CARES Act – Defined Benefit Plans

The Coronavirus Aid, Relief and Economic Security (CARES) Act passed the House of Representatives today and is expected to be signed by the President shortly. The CARES Act includes pension relief provisions that have an immediate effect on defined benefit plans.

Prior to this relief, contributions for calendar year defined benefit plans for the 2019 plan year were due on the earlier of the date 2019 taxes are filed (including any extensions), or September 15th, 2020. Additionally, calendar year plans with a funded status of less than 100% had first quarterly contribution for the 2020 plan year due on April 15th. The CARES Act allows plan sponsors to delay making those payments, as well as any other contributions previously due during the 2020 calendar year, to January 1, 2021. The amount of the contributions will be adjusted with interest at the plan’s effective interest rate from the original due date to the date the payment is actually made. This welcome relief will allow companies to hold on to cash to use for other purposes as the nation faces this pandemic. The relief is for both 2019 and 2020 plan year contributions.

Certain defined benefit plans (plans that aren’t frozen and those that offer lump sum payments over $5,000) are subject to benefit restrictions based on the funded status. The CARES Act allows plan sponsors to elect to use the 2019 plan year funded status as the 2020 plan year funded status to avoid benefit restrictions in 2020.

More guidance is expected and we at IAI are monitoring these developments.

This entry was posted in Cash Balance, Defined Benefit Plans, Informational, Retirement Planning, Tax Implications. Bookmark the permalink.

Comments are closed.