IRS Modifies CARES Act Due Date for DB Plan Contributions

The extended due date for contributions could help plan sponsors reduce PBGC variable rate premiums.

The IRS has issued Notice 2020-82, which says it will treat a contribution to a single-employer defined benefit (DB) plan with an extended due date of January 1, 2021, pursuant to the Coronavirus Aid, Relief and Economic Security (CARES) Act as timely if it is made no later than January 4, 2021.

The IRS explains that the extension of the due date for contributions to January 1, 2021, was intended to allow employers sponsoring these plans to defer these payment obligations until calendar year 2021 to alleviate an additional adverse impact on their businesses that were already harmed by the COVID-19 pandemic. However, the agency said it realizes that financial institutions cannot transfer funds on the January 1 due date because of the federal holiday. “This effectively requires many employers to make these contributions prior to January 1, 2021, which would be inconsistent with the legislative intent to defer the payment obligation until calendar year 2021,” the IRS says.

The Pension Benefit Guaranty Corporation (PBGC) also issued Technical Update 20-2, providing guidance and relief related to the timing of contribution receipts includable in the asset value used to determine variable rate premiums (VRPs) due in 2020. According to a post on October Three’s website, contributions made in 2021 (by January 4) are allowed to be counted for purposes of 2020 PBGC VRPs. “That possibility may be significant for, e.g., employers who want to make a CARES Act contribution that reduces 2020 variable rate premiums but would like to deduct that contribution in 2021,” October Three says.

The firm also notes that some sponsors can reduce 2020 PBGC VRPs by accelerating 2021 quarterly contributions to January 4, 2021. “Under this strategy, the sponsor, in effect, takes the amount of contributions required to be made for 2021 and contributes it for 2019,” October Three explains. “Doing that accomplishes two things: It creates a credit balance that can be used to satisfy 2021 contribution obligations; and it reduces the plan’s UVBs [unfunded vested benefits] and thus may reduce (for plans not at the variable rate premium headcount cap) the 2020 PBGC variable rate premium obligation.”