Earlier today, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by the House. Having already passed the Senate, the CARES Act will now go the President, who has stated he will sign it as soon as possible. The Act is far reaching for nearly every aspect of American life and business. This post focuses on the portion of the CARES Act with impacts qualified defined benefit retirement plans.
Defined Benefit Plan Relief
Delay in Plan Contributions. Employers now have until Jan. 1, 2021 to make any minimum required contributions for 2020. The relief applies to quarterly contributions and any year-end contributions, regardless of plan year. When paid, contributions will include interest for late payment at the plan’s effective interest rate for the plan year to which the contribution relates. NOTE: This delay applies only to “minimum required contributions” (as defined in Internal Revenue Code Section 430(a)); it does not provide additional time to make contributions that are required for other reasons. Plan sponsors that are obligated under a collective bargaining agreement or by the terms of an agreement with the PBGC should discuss with counsel the ability to delay such contributions before taking action.
Benefit Restrictions. When determining whether Section 436 benefit restrictions apply to any plan year that includes calendar year 2020, sponsors may choose to use the plan’s adjusted funding target attainment percentage from the 2019 plan year. Use of the prior year’s AFTAP may help sponsors avoid a benefits freeze and continue to allow payment forms such as lump sums, even if the plan’s funding level status has significantly decreased.
DOL Gains More Authority to Postpone Deadlines in the Event of a Public Health Emergency
Finally, the CARES Act amended Section 518 of ERISA to permit the Labor Secretary to provide extensions of certain ERISA compliance deadlines in the event of “a public health emergency declared by the Secretary of Health and Human Services.” These extensions likely would be similar to previous extension the DOL has authorized for hurricanes and other natural disasters. Any extension would be issued by the DOL in the coming months.
Graydon’s Employee Benefits team will continue to monitor these new laws and provide updates.
