In September 2020 we reviewed updated guidance on contribution timing for 2020 in the context of CARES Act relief providing that the due date for any ERISA-required 2020 defined benefit plan minimum contribution is delayed to January 1, 2021.
Very briefly: The IRS had in Notice 2020-61 (August 6, 2020) clarified that the extended CARES Act contribution deadline applied to both minimum and “excess” contributions – a critical issue in the calculation of PBGC variable-rate premiums. The extension did not, however, apply to the contribution due date for tax deductions or for filing Form 5500. On September 21, 2020, PBGC announced that it would allow DB sponsors to make contributions through January 1, 2021, that may be counted as plan assets for purposes of the 2020 variable-rate premium calculation. With respect to contributions made after October 15, 2020, this will generally require an amended premium filing and a refund of any premium overpayment.
It has been recognized that, since banks will generally be closed on January 1, 2021, these “CARES Act” contributions would under that guidance have had to be made on or before December 31, 2020.
New guidance – IRS Notice 2020-82 and PBGC Technical Update 20-2 – has now extended the CARES Act deadline to January 4, 2021.
This extension allows contributions made in 2021 (by January 4) to be counted for purposes of 2020 PBGC variable-rate premiums. 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.
We also note that some sponsors can reduce 2020 PBGC variable-rate premiums 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. Doing that accomplishes two things: (1) it creates a credit balance that can be used to satisfy 2021 contribution obligations; and (2) it reduces the plan’s UVBs and thus may reduce (for plans not at the variable-rate premium headcount cap) the 2020 PBGC variable-rate premium obligation. We discuss this strategy in detail in our article Reducing PBGC variable rate premiums: contribution timing.
We will continue to follow this issue.