The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27, 2020. The most prominent pension funding relief provision is an automatic extension for cash contributions due during 2020. All defined benefit plan contributions originally due in calendar year 2020 are extended to January 1, 2021. Seemingly an easy, straight forward solution, the specifics and impact extend far beyond a shift in physical days. Here are the details from recently released clarifications from the PBGC and IRS:
- The amount of the contribution due will include interest to the date paid. This results in a method of discounting that could include multiple interest rates. This could also result in the contribution amount being larger than estimated.
- Deduction deadlines remain unchanged. For some clients, the extension may not be advisable for this reason.
- Contributions made after the due date for the Form 5500 will need to be reported on an amended Form 5500 filing.
- PBGC Premiums can be developed using previous year contributions if deposited before the PBGC Premium due date. (This means calendar year plans have an additional month to deposit contributions.)
- Participant and plan level reporting for late contributions follow the CARES Act extended date, not the original due date.
The CARES Act also includes an option for the use of the previous year’s certified funded status when determining benefit restrictions. This requires a signed election to the plan administrator and actuary. This may be a good option when contributions cannot be paid by the original due date.
If you are considering taking advantage of the relief provisions, please reach out to your consultant to discuss how that might fully impact your plan.