CARES Act Administrative Q&As—Defined Benefit & Cash Balance Plans
The CARES Act didn’t specifically address longer-term issues that have arisen in the wake of the COVID-19 outbreak. Below we address several key issues regarding defined benefit and cash balance plans.
These FAQs were updated as of July 1, 2020. A print version is available here.
Defined Benefit & Cash Balance Plans
DB1: For a DB plan (such as a cash balance plan) which calculates the RMD based on an account balance, is the 2020 RMD waived in the same way RMDs are waived for a DC plan?
A: The RMD waiver is not applicable to DB plans, including cash balance plans.
DB2: Does the RMD waiver apply to an IRC §414(k) account within a defined benefit plan (such as a rollover account)?
A: No. IRC §414(k) provides that the account is treated as a defined contribution only for certain purposes. IRC §401(a)(9) is not one of the stated purposes. Therefore, the account is treated as a defined benefit plan.
DB3: I know there has been a proposal about relief for small employer defined contribution plans to waive 2019 contributions not made and suspend 2020 required contributions. Has there been any proposal for DB plans similar to this?
A: Not to forgo the contribution, but as we mentioned on the webcast, the CARES Act provided for a delay of any contributions due in 2020 to be made by January 1, 2021. But take note that there is interest due on the delayed payments.
DB4: If employers have up to 1/1/21 to make their DB contribution, what about the deduction, since most will file by 9/15/20?
A: The Act extended the deadline for making contributions but did not change the deduction timing rules. So, the deduction would have to be taken for 2021.
DB5: Any distribution relief for DB plans per payments to HCEs under Treas. Reg. §1.401(a)(4)-5(b)(3)(ii)?
A: Not at this point in time.