With all the attention focused on the stimulus bill, paid leave, and sick leave by Congress, it’s easy to overlook the IRS’s role in assisting sponsors of various retirement plans in overcoming time-sensitive deadlines. Several deadlines previously established by the IRS to adopt amendments or restatements to employer-sponsored retirement plans, specifically 403(b) plans maintained by tax-exempt entities and pre-approved defined benefit pension plans maintained by any employer, were quickly approaching.
The most immediate impact concerned 403(b) plans. Originally, all 403(b) plan sponsors were required to amend and restate their plan documents by March 31, 2020. It wasn’t until March 27 that the IRS extended the deadline of that initial remedial amendment period until June 30, 2020. The American Retirement Association (ARA) campaigned extensively for a one-year extension, citing that the very entities that sponsor these plans are the same entities directly affected by the COVID-19 pandemic, such as hospitals, public schools, colleges and universities.
Pre-Approved Defined Benefit Pension Plans
Several years ago, the IRS established fixed remedial amendment cycles during which plans could be amended or restated to capture all recent legislation and/or regulatory guidance for both defined contribution and defined benefit plans. The six-year remedial amendment cycle applicable to pre-approved defined benefit pension plans was scheduled to end on April 30, 2020.
On March 27, the IRS granted a three-month extension until July 31, 2020. Therefore, if an employer adopts a defined benefit pension plan that the IRS has “pre-approved” based on the 2012 Cumulative List of required amendments no later than July 31, 2020, the IRS will consider the plan to have been amended in a timely manner. Employers eligible to submit an application for a favorable determination letter also have until July 31, 2020 to submit that application.
Single-Employer Funding Relief for Both Defined Benefit and Money Purchase Plans
The CARES Act does address funding issues faced by sponsors of either defined benefit or money purchase pension plans (both of these types of plans required the employer to fund benefits for plan participants.
Any employer contribution that is due in the 2020 calendar year (including any quarterly contributions) is now delayed until January 1, 2021. However, interest will accrue on the delayed contributions, beginning from the original due date to the payment date, using the effective rate of interest for the plan year that includes the payment date.
Relief for employer contribution for defined contribution plans was not addressed in the CARES Act. While relief for such employer contributions has been requested of the IRS, it has not yet been addressed.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.