IRS Notice 2020-61 Provides Q&A Guidance on Single-Employer Defined Benefit Plan Funding and Benefit Limitations Under CARES Act Section 3608 | Practical Law

IRS Notice 2020-61 Provides Q&A Guidance on Single-Employer Defined Benefit Plan Funding and Benefit Limitations Under CARES Act Section 3608 | Practical Law

The Internal Revenue Service (IRS) has issued Notice 2020-61, which provides Q&A guidance on the special rules relating to single-employer defined benefit plan funding and benefit limitations under Section 3608 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

IRS Notice 2020-61 Provides Q&A Guidance on Single-Employer Defined Benefit Plan Funding and Benefit Limitations Under CARES Act Section 3608

by Practical Law Employee Benefits & Executive Compensation
Published on 07 Aug 2020 • USA (National/Federal)
The Internal Revenue Service (IRS) has issued Notice 2020-61, which provides Q&A guidance on the special rules relating to single-employer defined benefit plan funding and benefit limitations under Section 3608 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
On August 6, 2020, the IRS issued Notice 2020-61, which provides Q&A guidance on the special rules relating to single-employer defined benefit plan funding and benefit limitations under CARES Act Section 3608.
To learn more about the CARES Act, see Legal Update, CARES Act Contains Numerous Employee Benefit and Executive Compensation Provisions, Including Changes to COVID-19 Testing Mandate.
For a continuously updated collection of resources addressing COVID-19, see Practical Law's Global Coronavirus Toolkit.

Minimum Required Contributions

The minimum required contribution (MRC) is the minimum amount that must be contributed to a pension plan for a plan year (see Practice Note, Minimum Funding Standards for Defined Benefit Plans: Determining Minimum Required Contributions). Code Section 430 and Treasury Regulations under that Section provide rules on determining the MRC for a plan year (26 C.F.R. § 1.430(a)-1).

CARES Act Changes

Under Section 3608(a)(1) of the CARES Act, the deadline for making MRCs, including quarterly contributions, for single-employer defined benefit plans during the 2020 calendar year is postponed to January 1, 2021. Interest, at the plan's effective rate of interest, will be added to the amount of each required contribution calculated between the original due date and the payment date (CARES Act Section 3608(a)(2)). This was done to help companies that need cash due to the economic impact of COVID-19.

Benefit Limitations for Underfunded Plans

When a single-employer defined benefit plan's assets fall below certain thresholds (as measured by the plan's adjusted funding target attainment percentage, or AFTAP), the plan will be presumed to be underfunded and the funding-based limitations of Code Section 436 (26 U.S.C. § 436) will require the plan to implement certain restrictions on plan benefits and amendments (see Practice Note, Benefit Restrictions Under Code Section 436).

CARES Act Changes

Under CARES Act Section 3608(b), a plan sponsor may elect to treat the plan's AFTAP for the last plan year ending before January 1, 2020 (December 31, 2019 for calendar-year plans) as the AFTAP for plan years that include 2020.

IRS Notice 2020-61

Notice 2020-61 includes 18 Q&As that provide guidance on CARES Act Section 3608. The Notice supersedes any conflicting guidance provided in the instructions for Schedule SB, Single-Employer Defined Benefit Plan Actuarial Information, of Form 5500.
The Q&As provide guidance on:
  • The extended deadline for contributions and interest adjustments.
  • The use of the prior year's AFTAP for plan benefit restrictions.
The Q&As include numerous examples illustrating this guidance.

Practical Implications

Notice 2020-61 provides guidance that will allow defined benefit plan sponsors and administrators to implement the changes under CARES Act Section 3608 affecting MRCs.