Given current circumstances, if you are at all concerned about your company’s ability to afford your 2020 defined benefit/cash balance pension plan contributions, you must consider action now that will allow you to reduce or eliminate the plan’s 2020 required contribution.
Most plans provide that benefits are “earned” once employees complete 1,000 hours during the year. For full-time employees, 1,000 hours is usually reached approximately June 21st for a calendar year plan. At least 15 days before this date, the plan may be “frozen” by providing a notice to plan participants and amending the plan to curtail benefits. Once amended, this will stop plan benefits from increasing, thereby eliminating the “normal cost”, typically the largest component of a plan’s required contribution. If the economy recovers quickly and 2020 turns out to be a good year, you may unfreeze the plan by amending before year-end to restore your plan contribution to its previous level.
If the plan is not amended to freeze benefits before the 1,000-hour threshold, it will be very difficult, if not impossible, to significantly reduce the 2020 required plan contribution.
Compounding this situation, if your plan investments have suffered losses in the stock market, the decline in value will tend to increase plan contributions. Depending on the value of your plan assets at the end of 2020, a contribution may still be required for the year even if the plan is frozen, though it will be much reduced from what it would be if the plan is not frozen.
Also, while this is hopefully premature, in recessions companies may need to reduce staff. Please be aware that the IRS considers a 20% reduction in plan participants to be a “partial plan termination.” In the event of partial plan termination, the tax code requires all affected participants to be fully vested in their plan benefits.
Finally, be aware that there are not currently any changes to the 2019 funding requirements (contributions due in 2020), but the IRS, DOL and PBGC are exploring the possibility of some sort of relief.
While it is amazing people are willing to stay home to help lower the spread it is, unfortunately, having a real financial impact on individuals. Below are some of the ways relief is being offered for those impacted by coronavirus. While it is expected that more relief is on the way below are some things you can do to help today.
1. Contact Creditors
Many creditors like the Apple Credit Card are allowing people to skip payments for the month of March without accruing additional interest. Most auto loans also have a feature to allow you to skip a payment or two in cases of financial hardship.
2. Contact Student Loan Providers
President Trump recently announced that all federal student loans will have interest waived during this period. Talking with your loan provider may create some options for payment deferral if needed.
3. Delay Filing Taxes
Filing and payments have been extended to July 15th for Federal and June 15th for State (CA). If you pay quarterly taxes or expect to owe taxes for 2019, this can help temporarily ease the burden. If you generally get a refund now may be an excellent time to file your taxes.
4. Talk with your utilities
Governor Newsome passed an executive order earlier this week to protect citizens and makes sure they have basic services like gas, water, electric internet and cell services.
5. Your Check Is in the Mail
The government is working on sending checks to (almost) everyone and the goal is to have the first payments issued April 6th and a second round issued May 18th. The details are being finalized and we should have greater clarity soon.
When we sent out the note that IRS Extends Filing Due Date and Payments, we took that information off the IRS website. As it turns out, the information was slightly incorrect. All payments have been extended to July 15th for Federal and June 15th for State. However, all filing must be made by April 15th with or without payment. To extend your filing, just simply ask your accountant to file an extension and that can push your filing date out to the summer as well.
The tax relief postpones various tax filing and payment deadlines that occurred starting on March 3. As a result, affected individuals and businesses will have until July 15, 2020, to file returns and pay any taxes that were originally due during this period. This includes 2019 individual and business returns normally due on April 15th, as well as various 2019 business returns due on March 15th. Among other things, this also means that affected taxpayers will have until July 15th to make 2019 IRA contributions.
The July 15th deadline also applies to quarterly estimated income tax payments due on April 15th and June 15th and the quarterly payroll and excise tax returns normally due on April 30th.
It also applies to tax-exempt organizations, operating on a calendar-year basis, that have a 2019 return due on May 15th.
At this time California is only allowing a 60-day extension until June 15th.
On March 13, 2020, the California Franchise Tax Board (FTB) announced special tax relief in response to the COVID-19 pandemic. Affected business and individual taxpayers are granted an extension to file 2019 California tax returns and make certain payments, until June 15, 2020. This relief is in line with the Executive Order issued by the Governor on March 12, 2020. The extended California deadline of June 15 may be pushed back even further if the Internal Revenue Service grants a longer relief period.
What about the IRS?
The White House and the Treasury Department have indicated they intend to postpone the filing deadline. However, the IRS has not yet issued an official notice or any guidance on the issue.
Caution: To be safe, we suggest filing extensions for all your calendar-year partnerships and S corporations today.
The relief includes moving various tax filing and payment deadlines that occur to June 15, 2020, including:
How to claim the benefit
Taxpayers claiming the special COVID-19 relief should write the name of the state of emergency (for example, COVID-19) in black ink at the top of the tax return to alert the FTB of the special extension period. If taxpayers are e-filing, follow the software instructions to enter disaster information. The software may need some time to reflect on these recent changes.
According to the FTB, a taxpayer does not have to be directly impacted to qualify for relief. Taxpayers who experience any difficulty in filing or paying, as a result of COVID-19, are included in this relief.