Funding deficiency and extended Deadline under CARES

[justanotheradmin]

My apologies if I'm not asking this correctly, I'm not an actuary, and don't do a ton with DB plans. If this has been answered elsewhere, please feel free to point me to that thread. 

Calendar year, small PBGC covered plan (maybe 30 people) has a $300,000 FD from 2018. Minimum required contribution for 2019 (including prior year FD) total $400,000. 

What is the funding deadline? I understand that interest is due for any minimum amounts not deposited by 9/15, but can the full minimum be extended? Or just the additional amount, the $100,000?

And the $300,000 has to be deposited by 9/15 to avoid another year of excise taxes?

[C. B. Zeller]

Any contributions made must be first applied to the prior year's funding deficiency. The sponsor has until 1/1/2021 to satisfy the MRC for 2019, however no contributions can be applied to the 2019 MRC until the 2018 deficiency is eliminated. So they have to come up with both the amount for the 2018 deficiency, plus the 2019 minimum by 1/1/2021, or they will have a deficiency for 2019.

[justanotheradmin]

Thanks @C. B. Zeller I understand the contributions get applied to the FD first. 

Do they really have until 1/1/2021 for the full amount? They don't know when they will be able to come up with the money, and it might not be until after 9/15. But they don't want to incur additional excise taxes. 

[C. B. Zeller]

CARES Act sec. 3608(a) extended the due date for any contribution due during 2020 to 1/1/2021. It has to be adjusted for interest to the date actually contributed, using the effective interest rate for the year in which the actual deposit occurs, not the 2019 effective interest rate.

[Calavera]

20 hours ago, C. B. Zeller said:

using the effective interest rate for the year in which the actual deposit occurs, not the 2019 effective interest rate

Wouldn't you use the 2019 effective interest rate for the 2019 plan year contributions and the 2020 effective interest rate for the 2020 plan year contributions?

[C. B. Zeller]

19 minutes ago, Calavera said:

Wouldn't you use the 2019 effective interest rate for the 2019 plan year contributions and the 2020 effective interest rate for the 2020 plan year contributions?

Here is the text of CARES 3608(a):

Quote

(a) Delay In Payment Of Minimum Required Contributions.—In the case of any minimum required contribution (as determined under section 430(a) of the Internal Revenue Code of 1986 and section 303(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1083(a))) which (but for this section) would otherwise be due under section 430(j) of such Code (including quarterly contributions under paragraph (3) thereof) and section 303(j) of such Act (29 U.S.C. 1083(j)) (including quarterly contributions under paragraph (3) thereof) during calendar year 2020—

(1) the due date for such contributions shall be January 1, 2021, and

(2) the amount of each such minimum required contribution shall be increased by interest accruing for the period between the original due date (without regard to this section) for the contribution and the payment date, at the effective rate of interest for the plan for the plan year which includes such payment date.

It says the amount is increased for interest from the original due date using the effective interest rate for the plan year containing the payment date. I understand this to mean:

(1) X = MRC calculated as of the val date 1/1/2019

(2) Y = minimum due as of normal minimum funding deadline of 9/15/2020 = X * (1 + 2019 EIR) ^ (20.5/12)

(3) Z = minimum due as of 12/31/2020 using CARES extension = Y * (1 + 2020 EIR) ^ (3.5/12)

or, alternatively

(4) Z = minimum due as of 1/1/2021 using CARES extension = Y * (1 + 2021 EIR) ^ (3.5/12)

4 seems highly impractical for a calendar year plan, as it would require you to have calculated the 2021 EIR by the first day of the plan year! Theoretically possible though, if your 2020 accruals are flat dollar amounts since the segment rates for 2021 will be published in September 2020.