COVID-19 Compliance Corner: IRS Clarifies Rules for Delayed DB Plan Contributions

Carol Buckmann, with Cohen & Buckmann P.C., explains legislative provisions or official guidance related to the COVID-19 pandemic that affect retirement and health plan sponsors.

The Coronavirus Aid, Relief and Economic Security (CARES) Act gave sponsors of single employer defined benefit (DB) plans until January 1, 2021, to make required contributions that were due in 2020. The extended due date does not apply to money purchase plans, fully insured plans or multiemployer plans. The CARES Act also permits plan sponsors to elect to use the funded percentage, or adjusted funding target attainment percentage (AFTAP), for the prior year to determine whether the benefit and amendment restrictions that apply when a plan is less than 80% funded will be applicable in 2020.  

The Pension Benefit Guaranty Corporation (PBGC) recently clarified how these rules affect variable premium calculations and reportable event obligations. Now, in Notice 2020-61, the IRS has answered a series of questions about how the CARES Act provisions affect tax and compliance issues such as deductions, Form 5500 reporting, contribution calculations and penalties for late payments. While the details of Notice 2020-61 are primarily of interest to actuaries, plan sponsors need to understand how their decisions will impact plan valuations and deductions.

Interest on Delayed Contributions

The extended payment date applies to annual contributions usually due by 8 1/2 months after the end of a plan year and to quarterly contributions required when a plan had a funding shortfall in the prior year. Under the regular rules, late quarterly contributions are subject to adjustment at the plan’s effective rate of interest plus 5 percentage points. However, the CARES Act provides that delayed contributions are adjusted for interest at the plan’s effective interest rate for the period between the original due date and the delayed payment date.

Notice 2020-61 contains examples of the interest calculations, beginning with calculations for a calendar year plan that was not required to make quarterly contributions. If the 2019 contribution due for this plan was made on December 31, 2020, the effective interest rate for 2019 would be applied through the usual funding deadline of September 15, 2020, and the effective interest rate for the 2020 plan year would be used for the remaining period. Examples are also given of delayed installment payments, which are credited toward the quarterly payments in order of their original due date.

Plan Sponsor Elections

Plan sponsors have until January 1, 2021, to make elections to decrease the 2019 required minimum contribution by applying a carryover or prefunding balance toward the contribution. This must be done in a writing directed to the actuary and the plan administrator. A decision to use the AFTAP for the last plan year ending before January 1, 2020, to determine whether benefit restrictions apply also requires a plan sponsor election. In order to make this election to use the prior year AFTAP, plan sponsors should follow the same procedures as are applicable to elections to apply balances toward the required minimum contribution. If the election is made before the actuary has made an AFTAP certification, the election serves as the certification. Two elections may be made for non-calendar year plans; one for each plan year that includes part of 2020.  

Even if the plan sponsor elects to use the 2019 AFTAP, the actuary will still be required to make a certification in 2020 to be used for 2021. Plan sponsor elections to use the 2019 AFTAP will not be carried over to 2021.

Form 5500 Requirements

The IRS says the usual Form 5500 reporting rules will apply and has not further extended Form 5500 filing deadlines. Most calendar-year plans will file on extension by October 15, 2020. Since Forms 5500 and actuarial Schedule SB cannot reflect contributions that have not been made by the date of the filing, contributions made after the Form 5500 filing may be designated for a prior year only if an amended Form 5500 with a revised Schedule SB is filed.


No changes have been made to the usual rules that determine the tax year in which contributions may be deducted. In order to be deductible, contributions must be made by the plan sponsor’s federal tax return due date (including extensions) for the tax year. For example, if a calendar year employer makes a contribution for the 2019 plan year on November 30, 2020, and the extended 2019 tax return due date for this employer was September 15, 2020, that contribution would have to be deducted by the employer to the extent permitted on its 2020 federal tax return. Plan sponsors should investigate whether delaying their contributions could cause their total planned contributions to exceed the maximum deductible contribution limit for the 2020 year.

What if the Contribution Isn’t Made by January 1, 2021?

There is a trap for the unwary here, since January 1 is a bank holiday. The IRS has not indicated that the contribution deadline is extended to the next business day.

If any portion of an interest-adjusted contribution otherwise due in 2020 is made after January 1, 2021, the 10% excise tax under Section 4971(a) will apply to the unpaid amount. In addition, a late quarterly installment amount will be adjusted for the period from January 1, 2021, using an interest rate of the plan’s effective rate for the 2021 plan year plus 5 percentage points. Unless the IRS issues additional relief, it will not be possible for employers experiencing financial hardship to request a funding waiver at that time. The deadline for requesting a funding waiver is the 15th day of the third month after the end of a plan year. In addition, a missed contribution is a reportable event under PBGC rules and, if aggregate missed contributions exceed $1 million, the plan has a lien on the assets of the sponsor and its controlled group members.

Plan Sponsors Should Consult Their Advisers

Due to the complexity of these rules, plan sponsors should consult with their actuaries and accountants about the impact of elections and the effect of contribution timing on their valuations and available deductions.


Carol Buckmann is a co-founding partner of Cohen & Buckmann P.C. As a highly regarded employee benefits and ERISA [Employee Retirement Income Security Act] attorney, Buckmann deals with the foremost issues in ERISA, including pension plan compliance, fiduciary responsibilities and investment fund formation.

She has 40 years of practice in this area of the law and a depth of experience on complex pension law and fiduciary problems. She regularly shares her thoughts on new developments in the benefits industry on Insights, Cohen & Buckmann’s blog, and writes and speaks on ERISA topics. Buckmann has been recognized by Martindale-Hubbell as an AV Pre-eminent Rated Lawyer, was selected for inclusion in the Best Lawyers in America and was named one of the Super Lawyers in Employee Benefits.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.