Background

Sponsors of single-employer defined benefit plans must make minimum contributions to the plan each year based on the IRC’s minimum contribution rules. These contributions may be in the form of contributions for the prior plan year (not due until the current plan year) or quarterly contributions for and paid during the current plan year.

Single-employer defined benefit plans are subject to IRC restrictions on accruals, amendments, lump-sum payments and payments of contingent-event benefits. Each year the plan’s actuary certifies to an adjusted funding percentage (the AFTAP) which governs whether and to what extent the restrictions apply.

The relief

The CARES Act’s relief for private sector, single-employer plans is as follows:

• The due date for any funding contribution due in 2020 is delayed until January 1, 2021.
• For purposes of determining whether a benefit restriction applies, the plan may elect to use its prior AFTAP for the last plan year ending before calendar year 2020 for any plan year that includes any month within calendar year 2020. For non-calendar-year plans, this generally means that the election can be made for two years.

Guidance on contributions

Notice 2020-61 advises actuaries how to determine the interest charges for the delayed payment and how to complete Schedule SB of Form 5500.

It clarifies that the relief applies not only to the minimum required contribution but also to contributions in excess of the minimum if made on or before January 1, 2021, and explains how to account for such payments.

The Notice also confirms that the relief does not extend the timing for contributions to be deductible for the preceding tax year.

Guidance on the benefit-restriction election procedure

Notice 2020-61 sets forth the election procedure for using the pre-2020 AFTAP. This requires the plan sponsor to notify its actuary of its choice to elect the relief.

Generally, separate elections will be needed for each year for which the election is available.

The Notice also explains how to apply the complex IRC benefit restriction rules for:

• Presumptive AFTAP periods
• Periods after a plan amendment
• The presumptive AFTAP for the following year

Actuaries must include certain detailed information with the Schedule SB of Form 5500. The Notice explains the needed information and how to include it.