The Coronavirus Aid, Relief and Economic Security (“CARES”) Act extended the deadline for making 2019 defined benefit plan contributions to January 1, 2021. At the end of last month, the Pension Benefit Guaranty Corporation (“PBGC”) issued new FAQs to clarify when the 2019 contribution must be made in order for it to be reflected in the calculation of the PBGC premium due on October 15, 2020.
All defined benefit plan sponsors must pay an annual premium to the PBGC. This premium is used to help fund the PBGC, its operations, and operation of distressed pension plans. The calculation for a defined benefit plan’s premium amount has two parts. First, there is a per participant flat-rate portion. Second, there is a variable-rate amount which is based on the plan’s unfunded vested benefits. When calculating a plan’s unfunded vested benefits, a plan sponsor may include contributions made by the filing due date. The PBGC premium for 2019 is due October 15, 2020. Normally, that would be one month after the 2019 contribution is due for calendar year plans, but the CARES Act extended the deadline for contributions due in 2020 to January 1, 2021.
The FAQs give plan sponsors an extra month, until October 15, 2020, to make their 2019 contributions and have that contribution reflected in the calculation of the variable rate premium due on October 15, 2020. Any contributions made for 2019 after the October 15, 2020 deadline may not be used when calculating the variable-rate portion of the sponsor’s PBGC premium, even if made before the CARES Act deadline of January 1, 2021.
The FAQs make clear that any contributions paid on or before Jan. 1, 2021 will not be considered late and will not trigger a reportable event, and the corresponding filing obligations. However, only those paid by October 15, 2020 may be used for the variable rate premium calculations.
If you have any questions about the delay by the PGBC, defined benefit plans, or any employee benefits related issue, please contact any of the Graydon employee benefits team.
