The American Rescue Plan Act of 2021 (‘ARPA’) contains a couple of provisions to help cash-strapped sponsors of defined benefit/cash balance (‘DB/CB’) plans. This relief probably won’t help a large number of your clients. However, if you have a client who is having difficulty making their required 2020 DB/CB contribution or missed a required contribution for 2019 and owes an excise tax, this relief could be a god-send.
Without getting too technical, ARPA offers two types of relief and the relief can be “retroactive”. The first type is a rest of shortfall amortization bases and allowing the bases to be amortized over 15 years instead of 7 years. This generally will reduce the minimum required contribution. An employer can elect to have this provision effective back to 2019. So, a client may be able to redo their 2019 valuation and claim a refund of any excise tax that they paid for missing the 2019 minimum DB/CB required contribution.
The second type of relief is interest rate relief. When interest rates go down, pension liabilities and required DB/CB contributions go up. ARPA increases the required interest rates used to calculate the minimum required contributions. Increasing the applicable interest rates will decrease the required DB/CB minimum contribution. This provision is generally effective for 2020, but the employer can elect to have this provision delayed. The ability to delay this provision will be helpful for clients who do not need the relief and do not want to pay their actuary to go back and redo their 2020 actuarial valuation.
In some cases, changes made to the 2019 or the 2020 actuarial valuation may flow through to 2021 in a favorable way. The intricacies of the ARPA relief can be technical. So, if you have a client who may need this relief, you may want to reach out to the plan’s actuary and coordinate.
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