DB Plan Relief Included in the CARES Act

The bill provides a delay for minimum annual required contributions and relief for plans that may have benefit restrictions triggered due to a drop in funding levels.

The CARES (Coronavirus Aid, Relief and Economic Security) Act signed into law March 27 not only includes provisions related to defined contribution (DC) plans, but it also provides relief for defined benefit (DB) plan sponsors.

Blogs and client alerts from multiple law firms report that Section 3608 of the CARES Act provides a delay for minimum annual required contributions (ARCs) that would otherwise be due from single-employer DB plans during this calendar year. 

The new due date for any such contribution is now January 1, 2021. Any contributions that are delayed are increased by interest for the period beginning on the original due date to the actual payment date.

The CARES Act also provides relief for required benefit restrictions. For plan years beginning on and after January 1, 2008, the Pension Protection Act of 2006 (PPA) imposed new benefit restrictions on plans that do not meet specific funding percentage levels. If a plan’s adjusted funding target attainment percentage (AFTAP) is less than 80%, there are restrictions on distributions that may be made to participants and on the ability to enhance benefit accruals.

Under the CARES Act, a plan sponsor may elect to treat the plan’s AFTAP for the previous plan year —the year ending before January 1, 2020—as the AFTAP for plan years which include calendar year 2020. This may allow some plans to avoid triggering certain benefit restrictions in 2020 that would otherwise apply.