Delay to Deadline for Plan Sponsors to Make Retirement Plan Contributions
Posted on March 31, 2020 by Legacy Retirement Solutions
The fanfare and excitement over the recent enactment of the Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES”) Act may have caused some plan sponsors to miss another very important piece of tax-qualified retirement plan related relief. IRS Notice 2020-18 (“Notice 20-18”) was released on March 20, 2020 and, on March 24, 2020, the IRS issued certain “frequently asked questions” (“FAQs”) about Notice 20-18.
Notice 20-18 indicated that all federal income tax returns and tax payments that would have otherwise become due on April 15, 2020 are automatically postponed until July 15, 2020. The delay of this specific deadline is significant to the tax-qualified retirement plan industry. This is because, as you probably already know, the deadline for making certain contributions to a tax-qualified retirement plan under section 404(a)(6) of the Internal Revenue Code in connection with a particular tax year generally is the deadline for the plan sponsor to file its tax return for that time period. Thus, the guidance offered under Notice 20-18 inspired questions as to whether the postponed tax filing deadline also impacted the plan contribution deadline.
Although not directly addressed within Notice 2018, the FAQs specifically stated that:
Q: For employers with a federal income tax return due date of April 15, 2020, is the end of the grace period under section 404(a)(6) to make contributions to their qualified retirement plans on account of 2019 also July 15, 2020 as a result of this relief?
A: Yes, because … [Taxpayers] … for whom the due date for filing Federal income tax returns and making Federal income tax payments that would be due April 15, 2020, is now July 15, 2020, the end of the grace period for those employers is also July 15, 2020 under this relief. So, for example, if an employer is a corporation with an April 15, 2020 due date for filing the Form 1120, then the grace period under section 404(a)(6) for the employer to make contributions to its workplace-based retirement plan that are treated as made on account of 2019 ends on July 15, 2020.
Thus, Notice 2020-18 and the FAQs authorize a plan sponsor for whom the 2019 retirement plan contribution deadline was April 15, 2020 to postpone the contribution deadline until July 15, 2020. However, please be aware that, in application, this relief is available only with regard to certain forms of employer contributions since employee deferrals are subject to a different contribution timeframe.
Finally, the relief considered above is different than the defined benefit pension plan funding relief granted under the CARES Act. For a discussion of that and other relevant provisions of the CARES Act, please refer to our separate Legislative Update being released concurrently with this article which specifically addresses retirement plan provisions of the CARES Act.
We hope that this article helped you to better understand this topic. However, please be advised that it is not intended to serve as financial, tax or legal advice so it should not be construed as such. If you have questions about this topic, we strongly urge you to further discuss it with a qualified retirement plan professional. For more information about this topic, please contact our marketing department at 484-483-1044 or your administrator at Legacy.