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CARES Act IRS Notice 2020-61 for DBs: PSA


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Hello! I happen to be familiar with IRS Notice 2020-61, which came out today, covering the deferral of 2020 contributions to 1/1/2021 under the CARES Act. I found the Notice to be very confusing, so I thought I would start this thread as a PSA, to give pension actuaries a leg up on understanding this. This post will explain how & what interest rates are to be used in connection with DB contributions originally due during calendar 2020 under Notice 2020-61.

Under 2020-61, the CARES Act EIR rule (i.e., contributions are adjusted at the EIR of the plan year containing payment date) applies for payments actually made from January 1, 2020 through midnight on January 1, 2021 (or January 4, 2021 if the provision in the current Senate stimulus bill passes). For contributions that were originally due during calendar 2020 not yet paid by midnight, January 1, 2021, the CARES Act EIR rule expires. What replaces the CARES Act EIR rule (for unpaid amounts from 2020) is a modified version of 430(j); the modifications are that the quarterly & catch-up due dates are moved from calendar 2020 to 1/1/2021, and the quarterly contribution amounts are increased (with the EIR from the plan year they pertain to) to 1/1/2021.

So, for example (which is unfortunately not included as a Notice 2020-61 example), say you have a calendar year plan, with a 1/1 valuation date, not subject to quarterly contributions in 2019. Say the 2019 contribution is made on 1/1/2021. To determine whether the 2019 MRC has been met, you must discount the contribution back to 1/1/2019 at the 2021 EIR. If instead, the contribution was made on 12/31/2020, you must discount the contribution back to 1/1/2019 at the 2020 EIR.

The following chart is intended to help you walk through examples provided in Q&A 2 through 6:

Notice Example

Topic: Discounted contributions @ val date

Topic: Adjusting QRC with interest to 1/1/21

PY contribution is for

EIR used: orig due date to 1/1/21

Why?

Payment dates used

A-2

Yes

 

2019

2020

CARES Act EIR rule

12/31/20

A-3

Yes

 

2019

2020

CARES Act EIR rule

12/31/20

A-5

 

Yes

2020

2020

CARES Act EIR rule

12/31/20, 6/1/20

A-6 Ex 1a

 

Yes

2020

2020

Expiration of CARES Act EIR rule; modified 430(j)

Not paid by 1/1/21

A-6 Ex 1b

Yes

 

2020

2020, then 2020+5%

Modified 430(j)

2/15/21

A-6 Ex 2a

 

Yes

2019

2019

Expiration of CARES Act EIR rule; modified 430(j)

Not paid by 1/1/21

A-6 Ex 2b

 

Yes

2019

2020 for 12/15/20 payment; 2019 for unpaid at 1/1/21

CARES Act EIR rule; Expiration of CARES Act EIR rule; modified 430(j)

12/15/20, nothing else paid by 1/1/21

 

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Without (yet) addressing EVERYTHING in your post, I want to say that the 2020 Effective Interest Rate only applies to contributions deposited between  September 16 and December 31, 2020.  Furthermore, this 2020 rate only applies to discounting the contribution amount back to  September 15, 2020,  with the remaining discounting (back to 1/1/2019) using the 2019 Effective Interest Rate.

Contributions deposited on or before (the original due date) September 15, 2020 are discounted using the 2019 Effective Interest Rate.

P.S.  I was disappointed to see that the IRS rules did not "technically correct" the error in the law.   That is,  ALL discounting should be at the 2019 rate, to be consistent with all prior rules under PPA.

...  Jeff

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The examples in A-5 and A-6 adequately cover the adjustments required for 2020 quarterly installments due during 2020, however the notice included no mention of what to do with the 2019 4th quarter installment due on January 15, 2020. Here is my analysis, based on the guidance provided in the notice:

The January 15, 2020 installment, or any portion of it that was unpaid as of January 15, 2020, is increased at the 2019 effective interest rate to the date of payment, not later than January 1, 2021.

The 2019 funding contribution will not be made later than January 1, 2021, therefore the penalty discount rate (2019 EIR + 5%) will never apply to this installment. The contribution is discounted at the 2019 EIR from the date paid to the valuation date, the same as if the quarterly installment requirement did not apply.

Therefore, this has the effect of eliminating the 4th quarter installment for 2019.

Do you agree? Did I miss something in the notice?

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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I am adding this chart to more explicitly summarize the interest rate situation under IRS Notice 2020-61:

CARES Act Interest Rates:

Purpose of Interest Rate:

Increasing QRC amount from original 2020 due date to earlier of payment or 1/1/2021

Discounting paid contribution from payment date to original 2020 due date

Payment is made by 1/1/2021

EIR from plan year containing payment date

EIR from plan year containing payment date

Payment is not made by 1/1/2021

EIR from plan year that the QRC was originally due for (from original due date to 1/1/2021)

EIR from plan year that the QRC was originally due for + 5% from payment date back to 1/1/2021; EIR from plan year that the QRC was originally due for from 1/1/2021 back to original 2020 due date

 

Jeff, I agree with your statement for the catch-up payment for a 2019 calendar plan year. Quarterly contributions originally due during 2020 (made by 1/1/2021) are also adjusted at the EIR for the plan year containing the payment date, from payment date back to original due date.

C.B., I think your example is similar to Q&A 6, Example 2b. In that example, a 2019 quarterly was originally due on 10/15/2020 (during the 10/1/2020 plan year). It gets adjusted at the EIR for the 10/1/2020 plan year to payment on 12/15/2020. So, for a calendar year plan year, if the 1/15/2020 quarterly is paid by 12/31/2020, it will be adjusted by the 2020 EIR between 1/15/2020 & payment date. If it is paid on 1/1/2021, it will be adjusted by the 2021 EIR between 1/15/2020 and 1/1/2021 (i.e., payment date). Q&A 7 gives a way to ensure that you've met that quarterly requirement by using an upper bound for the 2021 EIR in lieu of the (as yet unknown) actual 2021 EIR. 

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