The president recently passed stimulus legislation called the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, HR 748.
The legislation includes relief for pension plans, but not the type of relief passed in 2012 and 2014 (tightening the interest rate “corridor” to improve funded status and lower contribution requirements), and is only for single employer plans, providing:
- Minimum funding payments due in 2020 may be deferred until 1/1/2021. When paid, interest must be included for the period between the original due date and the actual payment date using the effective rate for the plan year that includes the payment date. Cash flow requirements may be eased but it may be considered expensive. This includes the 1/15/2020 quarterly contribution, which was already made and may mean that Form 5500/Schedule SB could be delayed. (Form 5500 is the annual return/report of employee benefit plan).
- For benefit restriction purposes, the adjusted funding target attainment percentage status (AFTAP) for the last plan year ending before 1/1/2020 may be used for determining any restrictions in 2020. This still needs to be clarified for non-calendar year plans.
There are also provisions for defined contribution plans:
- Hardship distribution penalties waived for affected participants (infected, reduced work, other factors)
- Increased loan limits
- Waiver of required minimum distribution (RMD) rules for 2020
We could see further relief pushed later in the year for single and multi-employer plans, but it is too early to know what types of relief would be included. It is possible that for single employer plans, it would extend the 2014 (HATFA) relief by tightening the corridor for interest rates for funding valuations (to increase rates, lower liabilities and reduce funding requirements) and possibly additional asset smoothing (to spread out the impact of potential asset losses). Whereas multi-employer plans could get additional asset smoothing, like we saw in 2009. We will have to see what any bottoming/recovery looks like before understanding the extent of relief we could see.
We will continue to monitor the actions affecting pension plans as 2020 unfolds and keep you up to date.
Information provided by SEI Investments Management Corporation, a registered investment adviser and wholly owned subsidiary of SEI Investments Company.
Please read https://www.congress.gov/bill/116th-congress/house-bill/748 for additional details on the CARES Act.