The IRS on Aug. 6 in Notice 2020-61 issued guidance on special funding and benefit limitation rules for single-employer pension plans under the Coronavirus, Aid, Relief and Economic Security (CARES) Act.
Specifically, Notice 2020-61 provides guidance regarding the special rules relating to single-employer defined benefit plans under Section 3608 of the CARES Act.
Under these special rules:
- a contribution that would otherwise be required to be made to such a plan during 2020 must be made by Jan 1, 2021;
- special interest adjustment rules apply to a contribution that is made after the otherwise applicable deadline; and
- an employer may elect to apply the benefit restrictions for underfunded plans under Internal Revenue Code Section 436 for the 2020 plan year (or a fiscal plan year that contains any part of 2020) using the plan’s funded status for the last plan year ending in 2019.
Section 3608(b) of the CARES Act provides that for purposes of applying Code Section 436 and Section 206(g) of ERISA, a plan sponsor may elect to treat the plan’s adjusted funding target attainment percentage (AFTAP) for the last plan year ending before Jan. 1, 2020, as the AFTAP for plan years that include calendar year 2020.
Questions and Answers
Notice 2020-61 also includes questions and answers that provide guidance regarding Section 3608 of the CARES Act. These questions include:
1. To which plans does the extended contribution due date of Jan. 1, 2021, under Section 3608(a)(1) of the CARES Act, apply?
2. How is a contribution adjusted for interest between the valuation date and the payment date for the contribution, taking into account the interest adjustment rules of Section 3608(a)(2) of the CARES Act?
3. What is the result if the contribution that the plan sponsor makes is less than the amount that was due on the original due date for the minimum required contribution, as increased with interest under Section 3608(a)(2) of the CARES Act?
4. Does the extended due date under Section 3608(a) of the CARES Act apply to contributions in excess of the amount needed to satisfy the minimum required contribution?
5. How is the amount of a quarterly installment determined, if the extended due date under Section 3608(a) of the CARES Act applies to the installment?
6. For a quarterly installment originally due during 2020 for which the due date is extended under Section 3608(a) of the CARES Act to Jan.1, 2021, what is the result if a plan sponsor does not satisfy that installment?
7. How are the interest adjustments determined if the plan’s effective interest rate for the plan year in which the contribution is made has not been determined at the time the payment is made?
8. If a plan sponsor makes a contribution for a plan year after the original due date for the plan year, but on or before the extended due date under Section 3608(a) of the CARES Act, how is it reported on Schedule SB of Form 5500?
9. Is a contribution for a plan year that is made after the original due date for the plan year (but on or before the extended due date for the plan year under Section 3608(a) of the CARES Act) taken into account for purposes of determining the value of plan assets for a plan year following the plan year for which the contribution is made?
10. Does the extended due date under Section 3608(a) of the CARES Act change the date by which a plan sponsor may make an election to increase a prefunding balance or to use a prefunding balance or a funding standard carryover balance to offset the minimum funding requirement for a plan year?
11. Does the extended due date under Section 3608(a) of the CARES Act change the date by which a contribution must be made in order to be deducted for a taxable year under Internal Revenue Code Section 404?
12. May a plan sponsor make an election under Section 3608(b) of the CARES Act (to apply the AFTAP for the last plan year ending before Jan. 1, 2020) for a plan with a plan year that is not a calendar year?
13. What procedures must a plan sponsor follow for making an election under Section 3608(b) of the CARES Act?
14. If a plan’s actuary has not certified the plan’s AFTAP for a plan year before the plan sponsor makes an election under Section 3608(b) of the CARES Act, what is the effect of the election for purposes of the presumption rules of Code Section 436(h)?
15. Is a plan’s actuary required to certify the plan’s AFTAP for a plan year for which the plan sponsor makes the election under Section 3608(b) of the CARES Act?
16. If a plan’s actuary certified the plan’s AFTAP for a plan year for which the plan sponsor later makes the election under Section 3608(b) of the CARES Act, what is the effect of that certification?
17. How does the restriction on plan amendments and unpredictable contingent event benefits apply if the AFTAP that applies is pursuant to a plan sponsor’s election under Section 3608(b) of the CARES Act?
18. Does the AFTAP that applies pursuant to a plan sponsor’s election for a plan year apply for purposes of the presumptions under Code Section 436(h) used in a subsequent plan year?
Form 5500
Notice 2020-61 affects Form 5500 reporting as well. It says that to the extent the instructions for Schedule SB, ‘Single-Employer Defined Benefit Plan Actuarial Information,’ of Form 5500 are inconsistent with the guidance in Notice 2020-61, that guidance supersedes the instructions in Schedule SB.
Publication
Notice 2020-61 will appear in Internal Revenue Bulletin (IRB) 2020-35 dated Aug. 24, 2020.
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