Deferred pension funding subject to penalties

Tax Hot Topics newsletter The IRS clarified in a series of questions and answers (Q&As) included in Notice 2020-61, that employers who defer funding of single-employer defined benefit pensions pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act will still be subject to late penalties on any required contributions that remain unpaid after the extended contribution date in 2021.

The CARES Act suspends 2020 funding obligations for single-employer defined benefit pension plans until Jan. 1, 2021, (with interest due) and allows pensions to use the prior year’s funded status for certain benefit restrictions.

The notice also addresses other administrative issues related to pension funding and clarifies that the extended due date for required contribution in 2020 does not change the date by which a contribution must be made in order to be deducted for a taxable year (generally no later than the time prescribed by law for filing the federal income tax return for that taxable year, including extensions).

Jeff Martin
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
+1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
+1 202 861 4107

Tax professional standards statement 
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.