The Internal Revenue Service recently announced that it will treat contributions to single-employer defined benefit pension plans, previously extended to January 1, 2021 by the CARES Act, as timely if made no later than January 4, 2021 (which is the first business day after January 1, 2021).
Plan sponsors of qualified defined benefit plans generally must make minimum required contributions to the plan for the plan year no later than 8-½ months after the end of the plan year to which they relate (for calendar year plans, by September 15). For plans with a funding shortfall for the prior plan year, the plan sponsor is required to make quarterly installments toward the minimum required contribution for the plan year (for calendar years plans, the due dates for the installments are April 15, July 15 and October 15 of the plan year, and January 15 of the following year).
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law in March 2020 in response to the COVID-19 pandemic, extends the due date to January 1, 2021 for any minimum required contribution that would otherwise be due during calendar year 2020, including quarterly installments. This CARES Act extension was intended to help employers sponsoring single-employer defined benefit plans alleviate an additional adverse impact on their businesses already harmed by the COVID-19 pandemic by deferring the minimum required payment obligation until 2021.
However, because January 1, 2021 is a legal holiday, and financial institutions cannot transfer funds on that date, this effectively will require plan sponsors to make these deferred contributions prior to January 1, 2021, (in the 2020 calendar year) which would be inconsistent with the legislative intent. In order to achieve the deferral of the payment obligation until calendar year 2021, the IRS issued Notice 2020-82 providing that the IRS will treat a defined benefit pension plan contribution with an extended due date of January 1, 2021 under the CARES Act as timely made if made no later than January 4, 2021 (which is the first business day after January 1, 2021).
The PBGC also clarified that a contribution for the prior plan year that is made by January 4, 2021 may be taken into account in calculating plan assets for the purposes of the variable-rate premiums for a plan year as long as the premium filing is amended by February 1, 2021 to reflect the contribution.
This guidance is welcome news for plan sponsors who wish to make minimum required contributions to single-employer defined benefit plans in calendar year 2021 rather than 2020. Plan sponsors should consult with their ERISA counsel and plan actuary regarding the timing of payment of the 2020 contributions.
