IRS Postpones Deadline for Paying and Reporting Excise Taxes Related to Unpaid Minimum Required Contributions for Single-Employer Defined Benefit Plans | Practical Law

IRS Postpones Deadline for Paying and Reporting Excise Taxes Related to Unpaid Minimum Required Contributions for Single-Employer Defined Benefit Plans | Practical Law

The Internal Revenue Service (IRS) has issued Announcement 2020-17, which postpones until January 15, 2021, the deadline for reporting and paying excises taxes related to unpaid minimum required contributions (MRCs) to single-employer defined benefit plans. According to the IRS, this relief is needed to align the excise tax deadline with the delayed deadline under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) for making MRCs.

IRS Postpones Deadline for Paying and Reporting Excise Taxes Related to Unpaid Minimum Required Contributions for Single-Employer Defined Benefit Plans

by Practical Law Employee Benefits & Executive Compensation
Published on 11 Sep 2020 • USA (National/Federal)
The Internal Revenue Service (IRS) has issued Announcement 2020-17, which postpones until January 15, 2021, the deadline for reporting and paying excises taxes related to unpaid minimum required contributions (MRCs) to single-employer defined benefit plans. According to the IRS, this relief is needed to align the excise tax deadline with the delayed deadline under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) for making MRCs.
On September 10, 2020, the IRS issued Announcement 2020-17, which postpones until January 15, 2021, the deadline for reporting and paying excises taxes related to unpaid minimum required contributions (MRCs) to single-employer defined benefit plans. According to the IRS, this relief is needed to align the excise tax deadline with the delayed deadline under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) for making MRCs.
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Extended Deadline for Minimum Required Contributions Under the CARES Act

The 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). Internal Revenue Code Section 4971 imposes:
  • An excise tax if a plan fails to satisfy the minimum funding standards equal to 10% of the aggregate unpaid MRCs (for all plan years) as of the end of the plan year (26 U.S.C. § 4971(a)(1)).
  • A quarterly 10% excise tax on any liquidity shortfall, measured at the end of each plan quarter. This tax also increases to 100% if it remains unpaid at the end of five consecutive quarters (26 U.S.C. § 4971(f)(1), (2)).
(See Practice Note, Minimum Funding Standards for Defined Benefit Plans: Excise Taxes Under Code Section 4971.)
Under 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 (see Legal Update, CARES Act Contains Numerous Employee Benefit and Executive Compensation Provisions, Including Changes to COVID-19 Testing Mandate: Single-Employer Defined Benefit Funding Deadlines). 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.
In August 2020, the IRS issued Notice 2020-61, which provides Q&A guidance on implementing the CARES Act changes (see Legal Update, IRS Notice 2020-61 Provides Q&A Guidance on Single-Employer Defined Benefit Plan Funding and Benefit Limitations Under CARES Act Section 3608).

Announcement 2020-17

Announcement 2020-17 postpones the deadline for reporting and paying excises taxes related to unpaid MRCs until January 15, 2021. The new deadline "overrides" the deadline provided in Form 5330 and the Form 5330 instructions, but only for excise taxes related to MRCs.
According to the IRS, the relief provided in the announcement is needed to align the deadline for the excise taxes with the extended deadline for making the MRCs. Otherwise, employers would need to report and pay the excise taxes by September 15, 2020, despite having until January 1, 2020, to make MRCs to the plan.

Practical Implications

Defined benefit plan sponsors and administrators should take note of the extended deadline for reporting and paying excise taxes related to MRCs that are affected by the CARES Act.