The CARES Act and defined benefit plans: two kinds of relief

Depending on what kind of retirement plan you’re talking about, participant relief can mean various things. The CARES Act grants defined contribution plan participants easier access to their savings through a new kind of distribution and relaxed plan loan rules. Meanwhile, on the defined benefit side, two CARES Act provisions, which we’ve summarized below, are designed to address the cash liquidity concerns of plan sponsors by temporarily loosening funding rules.

The CARES Act ushers in additional challenges to pension plan sponsors

For years, pension plan sponsors have experienced the challenges of financing their plans in a historically low interest-rate environment. By mid-March, their funding challenges had increased as COVID-19 took hold, the markets turned volatile, and it became clear that plan sponsors’ own business earnings could also feel the impact.

Recognizing this, Congress included two types of funding relief in the Coronavirus Aid, Relief, and Economic Security (CARES) Act for single-employer pension plans. 

1  A delay until December 31 in minimum required contributions due in 2020

This includes both quarterly and year-end contributions, regardless of the plan year to which they apply. Interest will accumulate at the appropriate effective rate of interest (the 2020 rate for calendar year plan years) dating back to the original due date, and must be included when the contributions are made.  

2  An alternative funded status for determination of benefit restrictions

The CARES Act also allows employers to use an earlier adjusted funding target attainment percentage (AFTAP) in determining whether Section 436 benefit restrictions apply for plan years that include calendar year 2020. These restrictions could include the freezing of benefits or limiting the availability of lump-sum or other accelerated distributions. Under this rule, a plan with a July 1 to June 30 plan year could use the AFTAP for a plan year beginning July 1, 2018, for plan years beginning July 1, 2019, and July 1, 2020.  

Of course, things could change quickly

In any case, we advise you to stay on top of this ever-changing situation—and work closely with your actuary.

For more background on how the new laws affect your plan, watch a replay ofJohn Hancock’s “CARES Act webinar” or review the other resources available on our COVID-19 page. To be sure you’re prepared for these important changes, please talk to your retirement plan administrator, plan consultant, or financial professional.

The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.  


MGTS-P42220-GE 05/20 42220                     MGR0514201184566

Andre Stuart, ASA, EA, MAA

Andre Stuart, ASA, EA, MAA, 

Head of Defined Benefit Consulting

John Hancock Retirement

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