# Bulletin No. 2020–35 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A30881a3c8d0a8065 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text HIGHLIGHTS OF THIS ISSUE   Bulletin No. 2020–35 August 24, 2020 These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. ADMINISTRATIVE REG-132434-17, page 508. These proposed regulations interpret new section 7602(f)’s restrictions on the non-governmental persons (contractors) to whom the IRS may provide books, papers, records, or other data for the sole purpose of providing expert evaluation and assistance to the IRS. Ancillary contractors, such as court reporters, translators or interpreters, photocopy services, providers of data processing programs or equipment, litigation support services, and other similar contractors may continue to assist the IRS in its examinations of taxpayers, but the IRS will not hire certain types of non-governmental attorneys for these purposes. No person other than an officer or employee of the IRS or IRS Chief Counsel may, on behalf of the IRS, question a witness under oath as part of an examination, but IRS contractors who are court reporters or foreign language interpreters may continue to play their customary roles in asking a witness certain non-substantive questions in a summons interview. ADMINISTRATIVE, EXCISE TAX Notice 2020-55, page 467. Notice 2020-55 provides expanded disaster relief, in the form of postponing until October 31, 2020, certain Federal excise tax filing and payment deadlines, and associated interest, penalties, and additions to tax, for taxpayers who owe a federal excise tax for sales of sport fishing or archery equipment for the first quarter of 2020. EMPLOYEE PLANS Notice 2020-61, page 468. The notice provides guidance regarding the special rules relating to single-employer defined benefit pension plans under § 3608 of the CARES Act. Under these special rules, a Finding Lists begin on page ii. contribution that would otherwise be required to be made to such a plan during 2020 is required to be made by January 1, 2021, and special interest adjustment rules apply to a contribution that is made after the otherwise applicable deadline. In addition, an employer may elect to apply the benefit restrictions for underfunded plans under § 436 of the Code for the 2020 plan year (or a fiscal plan year that contains any part of 2020) using the plan’s funded status for the last plan year ending in 2019. Notice 2020-62, page 476. Notice 2020-62 modifies the two safe harbor explanations in Notice 2018-74, 2018-40 I.R.B. 529, that may be provided to recipients of eligible rollover distributions to satisfy the notice requirements under § 402(f). The safe harbor explanations, as modified by this notice, take into consideration certain legislative changes, including changes related to the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”), and include other clarifying changes. INCOME TAX Announcement 2020-13, page 492. A copy of the Competent Authority Arrangement entered into by the competent authorities of the United States of America and Switzerland, arranging the implementation of the arbitration process provided for in paragraphs 6 and 7 of Article 25 of the Convention Between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with respect to Taxes on Income. Notice 2020-63, page 491. This notice modifies Notice 2006-09, 2006-6 I.R.B. 413 and Notice 2008-33, 2008-12 I.R.B. 642, 2008, by providing a new address to which a vehicle manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) must send vehicle certifications and quarterly reports. The IRS Mission Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general interest. It is published weekly. It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, modify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of internal practices and procedures that affect the rights and duties of taxpayers are published. Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts stated in the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices, identifying details and information of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory requirements. Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may be used as precedents. Unpublished rulings will not be relied on, used, or cited as precedents by Service personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—1986 Code. This part includes rulings and decisions based on provisions of the Internal Revenue Code of 1986. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions and Other Related Items, and Subpart B, Legislation and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Secretary (Enforcement). Part IV.—Items of General Interest. This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements. The last Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a semiannual basis, and are published in the last Bulletin of each semiannual period. The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. August 24, 2020  Bulletin No. 2020–35 Part III Relief for Taxpayers Affected by Ongoing Coronavirus Disease Pandemic, Related to Sport Fishing Equipment and Bows and Arrows Excise Tax Filing and Payment Deadlines Notice 2020-55 SECTION 1. PURPOSE On March 13, 2020, the President of the United States issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act in response to the ongoing Coronavirus Disease 2019 (COVID-19) pandemic (Emergency Declaration). The Emergency Declaration instructed the Secretary of the Treasury “to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency, as appropriate, pursuant to 26 U.S.C. 7508A(a).” Pursuant to the Emergency Declaration, this notice provides relief under section 7508A(a) of the Internal Revenue Code (Code) for the persons described in section 3 of this notice that the Secretary of the Treasury has determined to be affected by the COVID-19 emergency. Notice 2020-48, 2020-29 IRB 72 (July 13, 2020), previously postponed certain federal tax filing and payment deadlines related to second quarter 2020 sport fishing equipment and bows and arrows excise taxes. SECTION 2. BACKGROUND Section 7508A of the Code provides the Secretary of the Treasury or his delegate (Secretary) with authority to postpone the time for performing certain acts under the internal revenue laws for a taxpayer determined by the Secretary to be affected by a federally declared disaster as defined in § 165(i)(5)(A) of the Code. Pursuant to § 7508A(a), a period of up to one year may be disregarded in determin- Bulletin No. 2020–35 ing whether the performance of those acts is timely under the internal revenue laws. Section 40.0-1(a) of the Excise Tax Procedural Regulations applies the part 40 procedural regulations to various excise taxes including those imposed on sporting goods by chapter 32, subchapter D, part I of the Code. Section 40.6011(a)-1(a) (1) provides that the return of any tax to which part 40 applies must be made on Form 720 (Quarterly Federal Excise Tax Return) according to the instructions applicable to the form. The requirement for filing a return under part 40 applies separately to each tax listed by IRS Number on Form 720. The federal sporting goods excise taxes are imposed by § 4161(a) on sport fishing equipment and by § 4161(b) on bows and arrows. These taxes are reported on Form 720, Part II, IRS Numbers: 41 (sport fishing equipment (other than fishing rods and fishing poles)), 110 (fishing rods and fishing poles), 42 (electric outboard motors), 114 (fishing tackle boxes), 44 (bows, quivers, broadheads, and points), and 106 (arrow shafts) (hereafter the “sport fishing and archery equipment numbers”). Under § 40.6011(a)-1(a), an entry for each IRS Number on Form 720 constitutes a separate return. The Form 720 due on April 30, 2020, covers the first calendar quarter (January, February, March) of the year 2020. SECTION 3. GRANT OF RELIEF Any person (as defined in § 7701(a) (1) of the Code) with a federal sporting goods excise tax payment due and the requirement to file a return under the sport fishing and archery equipment numbers on Part II of Form 720, on April 30, 2020 (the first quarter of 2020), is determined to be affected by the COVID-19 emergency for purposes of the relief described in this section 3 (Affected Taxpayer). For an Affected Taxpayer, the April 30, 2020, due date for filing Form 720 for the sport fishing and archery equipment numbers and making corresponding federal sporting goods excise tax payments is automatically postponed to October 31, 2020. This postponement of the due date 467 is automatic; Affected Taxpayers do not have to call the IRS or file any extension forms. An Affected Taxpayer who has already filed a first quarter Form 720 for excise taxes and fully paid the corresponding excise taxes on sport fishing and archery equipment by the normal due date (April 30, 2020) may disregard this notice and does not need to do anything further. An Affected Taxpayer who has already filed a first quarter Form 720 for excise taxes on sport fishing and archery equipment but has not fully paid such excise taxes may pay those taxes by the postponed deadline of October 31, 2020. An Affected Taxpayer who has not already filed its first quarter Form 720 and who takes advantage of this postponement should file only one Form 720 for the sport fishing and archery equipment numbers for the first quarter of 2020 by the postponed deadline of October 31, 2020. Any Affected Taxpayer that, pursuant to this notice, files its first quarter Form 720 for the sport fishing and archery equipment numbers after August 7, 2020, but by October 31, 2020, must adhere to the following instructions to take advantage of the postponed deadline of October 31, 2020, to file and pay such excise taxes: • Any Affected Taxpayer that has not already filed a first quarter Form 720 that wants to take advantage of the postponement must file a paper Form 720, rather than an electronic Form 720, to file its return for excise taxes on sport fishing and archery equipment. An Affected Taxpayer should file only one Form 720 for the sport fishing and archery equipment numbers for the first quarter of 2020 by the postponed deadline of October 31, 2020. In addition, an Affected Taxpayer must write “Notice 202055” on the top-center of the Form 720 on which its first quarter 2020 excise taxes on sport fishing and archery equipment are reported after August 7, 2020. • If any Affected Taxpayer that wants to take advantage of this postponement in filing is required to file a Form 720 for excise taxes other than for sport August 24, 2020 fishing and archery equipment on April 30, 2020, and has not done so, such an Affected Taxpayer should file a Form 720 reporting such excise taxes as soon as possible with the sport fishing and archery lines blank, to stop the further accrual of late filing penalties. • Any Affected Taxpayer that wants to take advantage of the postponement must not combine first quarter (the calendar quarter containing January, February, and March 2020) with second or third quarter (the calendar quarters containing April, May, and June, and July, August, and September 2020, respectively) excise taxes onto one Form 720. Affected Taxpayers who are seeking the second quarter relief provided by Notice 2020-48 should follow the filing procedures described in that notice. Affected Taxpayers must file separate Forms 720 for the first, second, and third quarters by October 31, 2020. Moreover, first, second, and third quarter Form 720 excise tax payments must be made separately, and Affected Taxpayers should clearly designate payments with respect to the type of tax and tax period for which the payment is made. As a result of the postponement of the April 30, 2020, due date for timely filing Forms 720 for the excise taxes on sport fishing and archery equipment and timely making such excise tax payments to October 31, 2020, the period beginning on May 1, 2020, and ending on October 31, 2020, will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to file a Form 720 for the excise taxes on sport fishing and archery equipment or to pay such excise taxes shown on that form and postponed by this notice. Interest, penalties, and additions to tax with respect to such postponed Forms 720 and payments will begin to accrue on November 1, 2020, if the taxes are then unpaid or the Forms are not timely filed. Affected Taxpayers that have been assessed penalties and interest with respect to untimely filing or payment for first quarter 2020 sport fishing and archery equipment excise taxes may request abatement pursuant to this notice. August 24, 2020 If an Affected Taxpayer receives a late filing or late payment penalty notice from the IRS regarding interest, penalties, or additions to tax calculated for the period prior to November 1, 2020, with respect to first quarter sport fishing and archery equipment excise taxes, the Affected Taxpayer should call the telephone number listed on the applicable IRS billing notice to have any such amount abated. SECTION 4. CONTACT INFORMATION For further information regarding this notice, you may call the COVID-19 Disaster Relief Hotline at (202) 317-5436 (not a toll-free number). Special Funding and Benefit Limitation Rules for Single-Employer Defined Benefit Pension Plans under the CARES Act Notice 2020-61 I. Purpose This notice provides guidance on the special rules relating to funding of single-employer defined benefit pension plans, and related benefit limitations, under § 3608 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. No. 116-136 (134 Stat. 281). II. Background A. Minimum funding rules for single employer defined benefit plans 1. General timing requirements Section 412 of the Internal Revenue Code (Code) provides that a sponsor of a qualified defined benefit plan (other than a multiemployer plan as defined in § 414(f) or a CSEC plan as defined in § 414(y)) must make contributions to or under the plan for the plan year that, in the aggregate, are not less than the min- 468 imum required contribution determined under § 430 for the plan year. Section 4971(a) imposes an excise tax on an employer that sponsors a plan subject to § 412 that has an unpaid minimum required contribution within the meaning of § 4971(c)(4) as of the end of the plan year. Section 430(j)(1) provides that the due date for the payment of any minimum required contribution for a plan year is 8½ months after the close of the plan year. Section 430(j)(2) provides that any payment made on a date other than the valuation date for the plan year must be adjusted for interest accruing for the period between the valuation date and the payment date, determined using the plan’s effective interest rate under § 430(h)(2) (A) for the plan year. Section 430(j)(3) provides that if the plan had a funding shortfall (as defined in § 430(c)(4)) for the preceding plan year, then the plan sponsor must pay four quarterly installments toward the required minimum contribution for the plan year. The due dates for the installments are April 15, July 15, and October 15 of the plan year, and January 15 of the following year (adjusted for a plan year that is not a calendar year under § 1.430(j)-1(c) (6)). Section 430(j)(3)(D)(i) provides that each quarterly installment is 25 percent of the required annual payment defined in § 430(j)(3)(D)(ii). Section 430(j)(3)(A) provides that if a quarterly installment is paid after the due date for that installment, then the interest rate that applies for the period of underpayment (in lieu of the interest rate that would apply under § 430(j) (2)) is the plan’s effective interest rate plus 5 percentage points. Section 430(g)(4)(A) provides that if a plan sponsor makes a contribution to the plan after the valuation date for the plan year in which the contribution is made, and the contribution is for a preceding plan year, the contribution is taken into account as an asset of the plan for the plan year in which it is made, except that only the present value (determined as of the valuation date) of that contribution may be taken into account. For this purpose, the present value of the contribution is determined using the effective interest rate for the preceding plan year for which the contribution is made. Bulletin No. 2020–35 2. CARES Act changes Section 3608(a)(1) of the CARES Act provides that any minimum required contribution that would otherwise be due under § 430(j) of the Code (and § 303(j) of the Employee Retirement Income Security Act, Pub. L. 93-406, as amended (ERISA)) during calendar year 2020 (including quarterly installments under § 430(j)(3) of the Code and § 303(j)(3) of ERISA) are due on January 1, 2021. Section 3608(a) (2) of the CARES Act provides that those contributions and installments are to be increased with interest accruing for the period between the original due date for the contribution or installment and the date of the payment at the effective interest rate for the plan for the plan year that includes the payment date. B. Benefit limitations for underfunded defined benefit plans 1. General rules regarding benefit limitations Section 436 of the Code provides limits on benefits and benefit accruals under single-employer defined benefit pension plans, which are applied based on the plan’s adjusted funding target attainment percentage (AFTAP) for a plan year. Section 436(b) provides generally that unpredictable contingent event benefits resulting from an event may not be paid if, taking into account the payment of those benefits, the plan’s AFTAP would be less than 60 percent. Section 436(c) provides generally that no amendment increasing liabilities may take effect if, after taking into account that amendment, the plan’s AFTAP would be less than 80 percent. Section 436(d) provides generally that the plan may not pay certain accelerated forms of benefit (such as a single-sum distribution) if the plan’s AFTAP is less than 80 percent. Section 436(e) provides generally that benefit accruals must cease if the plan’s AFTAP is less than 60 percent. 2. CARES Act changes Section 3608(b) of the CARES Act provides that for purposes of applying 1 § 436 of the Code (and § 206(g) of ERISA), a plan sponsor may elect to treat the plan’s AFTAP for the last plan year ending before January 1, 2020, as the AFTAP for plan years that include calendar year 2020. C. Other rules related to contributions and benefit limitations Under § 430(f), the plan sponsor of a defined benefit plan that is not a multiemployer plan may elect to maintain a prefunding balance that may be used, at the plan sponsor’s election, to offset the minimum required contribution for a plan year.1 Under § 430(f)(6)(B)(i), a plan sponsor may elect to add contributions that exceed the minimum required contribution for a plan year (adjusted with interest using the effective interest rate for the plan year in accordance with § 430(f)(6) (B)(ii)) to the plan’s prefunding balance. A plan sponsor may also elect to reduce the plan’s prefunding balance or the funding standard carryover balance as provided in § 430(f)(5). Section 1.430(f)‑1(f)(1) (i) generally provides that any election under § 430(f) by the plan sponsor must be made by providing written notification of the election to the plan’s enrolled actuary and the plan administrator. Section 1.430(f)-1(f)(2)(i) generally provides that any election under § 430(f) with respect to a plan year must be made no later than the last date for making the minimum required contribution for the plan year as described in § 430(j)(1), or such later date as prescribed in guidance published in the Internal Revenue Bulletin. However, § 1.430(f)‑1(f)(2)(iii) provides that any election to reduce the prefunding balance or funding standard carryover balance for a plan year (for example, in order to avoid or terminate a benefit restriction under § 436) must be made by the end of the plan year to which the election relates. Section 436(h) provides rules that apply prior to the certification of the AFTAP for a plan year by the plan’s actuary. Under § 436(h)(1), if a benefit limitation applied to a plan on the last day of the preceding plan year, then the current year’s AFTAP generally is presumed to be equal to the prior year’s AFTAP for the period beginning on the first day of the plan year and ending when the plan’s enrolled actuary certifies the AFTAP for the current plan year. Under § 436(h)(3), if (i) the plan’s enrolled actuary has not certified the AFTAP for the current plan year by the first day of the 4th month of the plan year, and (ii) the AFTAP for the prior plan year did not result in the application of a benefit limitation for that prior plan year (but would have resulted in the application of a benefit limitation had that AFTAP been 10 percentage points lower), then the AFTAP for the current plan year is presumed to be equal to 10 percentage points less than the AFTAP for the prior plan year, for the period beginning on that first day of the fourth month and ending when the enrolled actuary of the plan certifies the plan’s AFTAP for the current plan year. Under § 436(h) (2), if no certification of the AFTAP for the current plan year is made before the first day of the 10th month of that year, then the AFTAP for the current plan year is presumed to be less than 60 percent as of that first day. Sections 436(b)(2) and (c)(2) provide rules that allow a plan sponsor to avoid or terminate benefit restrictions under § 436(b) or (c) by making an additional contribution of a certain amount to the plan. Section 1.436-1(f) provides rules for these contributions, which are referred to as § 436 contributions. Section 1.436-1(f) (2)(i)(A) provides that any § 436 contribution made by a plan sponsor on a date other than the valuation date for the plan year must be adjusted with interest at the plan’s effective interest rate for the plan year. If the plan’s effective interest rate for the plan year has not been determined at the time of the contribution, then this interest adjustment must be made using the highest of the three segment rates as applicable for the plan year. In such a case, if the effective interest rate for the plan year is subsequently determined to be less than that highest rate, the excess is recharacterized as an employer contribution taken into account under § 430 for the current plan year. The regulations under § 436 address the calculation of a plan’s AFTAP. Section 1.436-1(h)(4)(iii) provides rules relating to changes in a plan’s AFTAP after it has Similar elections to maintain a funding standard carryover balance and to use that balance to offset the minimum required contribution are available to the plan sponsor. Bulletin No. 2020–35 469 August 24, 2020 been certified, and the effect of such a change depends on whether the change is material (within the meaning of § 1.4361(h)(4)(iii)(B)) or immaterial (within the meaning of § 1.436-1(h)(4)(iii)(C)). In general, a material change in AFTAP is defined as a change under which plan operations would have been different based on the subsequent AFTAP determination, and an immaterial change in AFTAP is defined as a change that is not material. Under § 1.436-1(h)(4)(iv)(A), a material change in a plan’s AFTAP will cause a plan to fail to comply with § 401(a). Section 1.436-1(h)(4)(iii)(C) provides a special rule that, subject to certain conditions, deems a change in a plan’s AFTAP to be immaterial (even if the change would otherwise be material) if the change results from an event specified in § 1.436‑1(h)(4) (iii)(C)(1) through (8). Section 1.436-1(h) (4)(iii)(C)(9) provides authority for the expansion of the list of events for which a resulting change in AFTAP may be deemed immaterial through publication of guidance in the Internal Revenue Bulletin. Deemed immaterial treatment under § 1.436-1(h)(4)(iii)(C) with respect to an event that results in a change in AFTAP is conditioned on the AFTAP being recertified as soon as reasonably practicable after the event. The effect of this deemed immaterial treatment is that the change in the plan’s AFTAP will not cause the plan to fail to comply with § 401(a) merely because of the change, provided that the plan administrator reflects the new AFTAP in plan operations on a prospective basis beginning with the date of the recertification. Section 404 provides rules regarding the deductibility of employer contributions to an employees’ trust or annuity plan and compensation under a deferred payment plan. Under § 404(a)(1)(A), contributions paid to the trust of a qualified defined benefit pension plan are deductible in the taxable year when paid, subject to the applicable limits. Under § 404(a) (6), a taxpayer making a contribution in a taxable year is deemed to have made the contribution on the last day of the preceding taxable year if the payment is on account of that preceding taxable year and is made not later than the time prescribed by law for filing the return for that preceding taxable year (including extensions thereof). August 24, 2020 Under § 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713) and § 3002(c) of ERISA, the Secretary of the Treasury has interpretive jurisdiction over the subject matter addressed in this notice for purposes of ERISA, as well as the Code. Thus, the provisions of this notice pertaining to §§ 430 and 436 of the Code also apply for purposes of §§ 303 and 206(g) of ERISA. III. Questions & Answers The following questions and answers provide guidance regarding § 3608 of the CARES Act. To the extent the instructions for Schedule SB, “Single-Employer Defined Benefit Plan Actuarial Information” of Form 5500, “Annual Return/Report of Employee Benefit Plan” are inconsistent with this guidance, this guidance supersedes those instructions. A. Extended deadline for contributions and interest adjustments Q-1: To which plans does the extended contribution due date of January 1, 2021, under § 3608(a)(1) of the CARES Act, apply? A-1: The extended contribution due date of January 1, 2021, applies to a defined benefit plan for which the minimum required contribution is determined under § 430. Thus, this extended contribution due date of January 1, 2021, does not apply to a multiemployer plan, a CSEC plan, a fully-insured plan described in § 412(e) (3), or a money purchase pension plan. Q-2: How is a contribution adjusted for interest between the valuation date and the payment date for the contribution, taking into account the interest adjustment rules of § 3608(a)(2) of the CARES Act? A-2: To determine the portion of the minimum required contribution for a plan year that is satisfied by a contribution, § 430(j)(2) of the Code and § 1.430(j)1(b)(4)(i) provide that the contribution is adjusted for interest for the period between the valuation date for the plan year and the payment date for the contribution, at the plan’s effective interest rate for the plan year. Under § 3608(a)(2) of the CARES Act, any payment that is made after the original due date for the contribution and by the extended due date under § 3608(a)(1) must be increased for the pe- 470 riod between the original due date and the payment date at the effective interest rate for the plan year that includes the payment date. Thus, if a contribution for a plan year were to be made during this period, the amount of the contribution must be larger to account for interest (determined using the plan’s effective interest rate for the plan year that includes the payment date) for the period between the original due date and the payment date in order to satisfy the minimum required contribution for the plan year to the same extent as a contribution made on the original due date. The following example illustrates the application of the interest adjustment described in this A-2: (a) Plan A has a plan year that is the calendar year and has a 2019 minimum required contribution, calculated as of the January 1, 2019, valuation date, of $1,000,000. The effective interest rate for the 2019 plan year is 5.75%, and the effective interest rate for the 2020 plan year is 5.65%. Plan A had no funding shortfall for 2018 (so there are no quarterly installment requirements for 2019), and the plan sponsor made no contributions for 2019 (and no elections to use a funding standard carryover balance or prefunding balance) before September 15, 2020. The actuary takes into account February 29, 2020, in counting the number of days in 2020 for purposes of calculating interest. (b) In the absence of § 3608(a) of the CARES Act, the final contribution for the 2019 plan year would have been due on September 15, 2020. A final contribution of $1,100,009 made on September 15, 2020, would satisfy the 2019 minimum required contribution. This is because a contribution of $1,100,009 made on that date, discounted using the 2019 effective interest rate to January 1, 2019, would equal the $1,000,000 minimum required contribution ($1,100,009 ÷1.0575(258/366 + 365/365) = $1,000,000). (c) Pursuant to § 3608(a)(1) of the CARES Act, the plan sponsor has until January 1, 2021, to satisfy the 2019 minimum required contribution for Plan A. If, on December 31, 2020, the plan sponsor were to make a single contribution necessary to satisfy the 2019 minimum required contribution for Plan A, the contribution would be $1,117,827. This is because a contribution of $1,117,827 Bulletin No. 2020–35 made on December 31, 2020, discounted using the 2020 effective interest rate back to September 15, 2020, and the 2019 effective interest rate from September 15, 2020, to January 1, 2019, would equal the $1,000,000 minimum required contribution ($1,117,827 ÷ 1.0565(107/366) ÷ 1.0575(258/366 + 365/365) = $1,000,000). Q-3: What is the result if the contribution that the plan sponsor makes is less than the amount that was due on the original due date for the minimum required contribution, as increased with interest pursuant to § 3608(a)(2) of the CARES Act? A-3: If, after the original due date for the minimum required contribution for a plan year, the plan sponsor makes a contribution that is less than the amount that was due on that date, as adjusted for additional interest to account for the period between the original due date and the date of payment of the contribution (at the effective interest rate for the plan year in which the payment is made), then a portion of the minimum required contribution for that plan year would remain unpaid. The unpaid portion of the minimum required contribution, determined as of the valuation date and based on contributions made on or before January 1, 2021, with the contributions discounted for interest to the valuation date as described in A-2 of this notice, would give rise to an unpaid minimum required contribution within the meaning of § 4971(c)(4) of the Code that would be subject to an excise tax under § 4971(a). Furthermore, a contribution made after January 1, 2021, to satisfy that unpaid minimum required contribution must be adjusted for interest for the period between the date that the contribution is made and the valuation date at the effective interest rate for the plan year for which the contribution is made (with additional interest as required to reflect any late quarterly installments for the plan year). The following example illustrates the situation described in this A-3: The facts are the same as in the example in A-2 of this notice, except that the plan sponsor makes a contribution of $1,100,009 on December 31, 2020, and makes no other contributions by January 1, 2021. The $1,100,009 contribution is discounted using the 2020 effective interest rate back to September 15, 2020, Bulletin No. 2020–35 and the 2019 effective interest rate from September 15, 2020, to January 1, 2019, resulting in $984,061 toward satisfaction of the 2019 plan year minimum required contribution ($1,100,009 ÷ 1.0565(107/366) ÷ 1.0575(258/366 + 365/365) = $984,061). Because the contribution is discounted for a longer period, this amount of the discounted contribution is not enough to satisfy the minimum required contribution of $1,000,000 as of January 1, 2019, resulting in an unpaid minimum required contribution of $15,939 ($1,000,000 - $984,061= $15,939). The $15,939 unpaid minimum required contribution is subject to excise tax under § 4971(a). Q-4: Does the extended due date under § 3608(a) of the CARES Act apply to contributions in excess of the amount needed to satisfy the minimum required contribution? A-4: Yes, if the contribution deadline under § 430(j)(1) of the Code for a plan year is during 2020, a contribution in excess of the amount needed to satisfy the minimum required contribution for the plan year that is made by January 1, 2021, may be designated as a contribution for that plan year. The present value of the excess contributions for a plan year, which can be used to increase the prefunding balance, is determined using the interest rate adjustment described in A-2 of this notice. In accordance with § 1.430(f)-1(b) (1)(iv)(A), this present value is increased for interest for the period between the valuation date for the plan year and the first day of the next plan year. In general, this increase for interest is made using the plan’s effective interest rate for the plan year for which the contributions are made. However, pursuant to § 1.430(f)-1(b)(3) (iii), this present value is instead adjusted using the plan’s investment experience to the extent that the excess results from the use of a funding balance to offset the minimum required contribution. Q-5: How is the amount of a quarterly installment determined, if the extended due date under § 3608(a) of the CARES Act applies to the installment? A-5: Section 3608(a)(2) of the CARES Act specifies that, to determine the amount of a quarterly installment due by the extended due date under § 3608(a)(1) of the CARES Act of January 1, 2021, the amount of that installment is increased 471 from the installment’s original due date to the payment date at the effective interest rate for the plan year that includes the date the quarterly installment is paid. Section 1.430(j)-1(c)(3)(ii) provides that if a contribution is made before the due date for the required installment to which it is allocated, then the amount credited toward that installment includes interest on the contribution from the date of the contribution to the due date for the installment (at the plan’s effective interest rate for the plan year for which the installment is paid). The following example illustrates the application of the interest adjustment described in this A-5: (a) The facts are the same as in the example in A-2 of this notice. In addition, for 2020, Plan A has required quarterly installments of $250,000. (b) In the absence of § 3608(a)(1) of the CARES Act, the first quarterly installment for the 2020 plan year would be due on April 15, 2020. Under § 3608(a)(1) of the CARES Act, the plan sponsor’s deadline for satisfying this quarterly installment is January 1, 2021. If the contribution is made on December 31, 2020, then the amount necessary to satisfy the first quarterly installment under § 3608(a)(2) of the CARES Act is $259,954 ($250,000 × 1.0565(260/366) = $259,954). (c) Under the extended deadline of § 3608(a) of the CARES Act, the quarterly installments for Plan A that were originally due July 15, 2020, and October 15, 2020, are also now due on January 1, 2021. The amount of these quarterly installments would be calculated in the same manner as shown in paragraph (b) of this example, except that the increase for interest would be for the period between the original due date and the payment date. (d) If, instead of waiting until December 31, 2020, the plan sponsor makes a contribution of $400,000 on June 1, 2020, then some of that contribution will satisfy the first quarterly installment (originally due April 15, 2020) and the balance of that contribution will be applied towards the second quarterly installment (originally due July 15, 2020). The portion of the June 1 contribution that is used to satisfy the first quarterly installment is $251,771 ($250,000 × 1.0565(47/366) = $251,771). Therefore, the balance of that contribution, which will be applied to the August 24, 2020 second quarterly installment, is $148,229 ($400,000 - $251,771 = $148,229). The remaining contribution needed to satisfy the second quarterly installment on its original due date of July 15, 2020, is $100,788 ($250,000 - $148,229 × 1.0565(44/366) = $100,788). If the contribution necessary to satisfy that quarterly installment is not made before that due date, but is made later in the year, then the contribution necessary to satisfy the unpaid installment must be increased with interest at the effective interest rate for the plan year from July 15, 2020, until it is made. Q-6: For a quarterly installment originally due during 2020 for which the due date is extended under § 3608(a) of the CARES Act to January 1, 2021, what is the result if a plan sponsor does not satisfy that installment? A-6: If a plan sponsor does not satisfy a quarterly installment originally due during 2020 by the extended due date under § 3608(a) of the CARES Act of January 1, 2021, then under § 430(j)(3)(A) of the Code, the unpaid portion of that installment is subject to a higher interest rate for the period during which the installment (or a portion of the installment) remains unpaid when determining the amount of the minimum required contribution that is satisfied by a contribution. As a result of § 3608(a) of the CARES Act, the period of underpayment does not begin until January 1, 2021. The unpaid portion of the quarterly installment as of that date, if any, is re-determined as of the original due date for the installment (based on contributions made on or before January 1, 2021, and discounted for interest as described in A-5 of this notice) and then increased from the original due date to January 1, 2021, using the effective interest rate for the plan year for which the installment is due. The following examples illustrate the application of these rules: Example 1: (a) The facts are the same as in the example in A-5 of this notice. The plan sponsor of Plan A makes a contribution of $100,788 on July 15, 2020. As shown in paragraph (d) of the example in A-5 of this notice, the first two quarterly installments have been satisfied by their original due dates. The plan sponsor does not make any additional contributions by the extended due date of January 1, 2021. As a result, the third quarterly installment August 24, 2020 of $250,000 (originally due on October 15, 2020) remains unpaid as of that date, and this unpaid installment is increased using the effective interest rate for 2020, resulting in an unpaid installment on January 1, 2021 of $252,945 ($250,000 × 1.0565(78/366)). (b) If the plan sponsor makes its next contribution to Plan A on February 15, 2021, the first $252,945 of that contribution will be used to satisfy the missed third quarterly installment. The interest rate used to discount the late required installment back to the due date will include the 5 percentage point increase for the period of time from February 15, 2021, to the extended due date of January 1, 2021, resulting in $249,809 as of January 1, 2021 ($252,945 ÷ 1.1065(45/365)). Therefore, the first $252,945 of that contribution that is used to satisfy the third quarterly installment would result in $236,449 toward satisfaction of the 2020 plan year minimum required contribution for Plan A ($249,809 as of January 1, 2021, divided by 1.0565). Example 2: (a) The facts are the same as in the first example in this A-6, except that Plan A has a plan year that began October 1, 2019, and ended September 30, 2020, and the required quarterly installments for that plan year are $200,000. In addition, Plan A’s effective interest rate is 5.71% for the plan year beginning October 1, 2019, and 5.61% for the plan year beginning October 1, 2020. The first three quarterly installments for the plan year were paid by the original due dates and the fourth quarterly installment of $200,000 (originally due October 15, 2020) is not paid by January 1, 2021. Because this quarterly installment was not paid by January 1, 2021, under the rules of this A-6, the unpaid portion of the installment is increased to January 1, 2021, using the effective interest rate for the plan year beginning October 1, 2019, resulting in an unpaid installment on that date of $202,387 ($200,000 × 1.0571(78/365)). (b) Note that if the contributions made by January 1, 2021, satisfy some, but not all, of the fourth quarterly installment, then the unpaid portion of that installment would be re‑determined as of October 15, 2020, by discounting those contributions from the date of the contribution to October 15, 2020 (using the 5.61% effective interest rate for the plan year in which the 472 contributions are made). The resulting unpaid quarterly installment is increased with interest to January 1, 2021 (using the 5.71% effective interest rate for the plan year for which the installment is due, rather than the 5.61% effective interest rate for the 2020 plan year). For example, if a contribution of $120,000 was made on December 15, 2020, then the unpaid portion of the quarterly installment as of January 1, 2021, is $82,058 (($200,000 – ($120,000 ÷ 1.0561(61/365))) × 1.0571(78/365)). Q-7: How are the interest adjustments determined if the plan’s effective interest rate for the plan year in which the contribution is made has not been determined at the time the payment is made? A-7: If the plan’s effective interest rate for the plan year in which the contribution is made has not been determined at the time the payment is made, then the rules for determining the interest rate for this adjustment are the same as the rules for determining the interest rate for the interest adjustment under § 1.436-1(f)(2)(i) (A). Thus, the interest adjustment must be made using the highest of the three segment rates for the plan year. However, if the effective interest rate for the plan year in which the contribution is made is subsequently determined to be less than the interest rate that was used under the preceding sentence, the difference in the present value of the contribution as of the valuation date may be added to the prefunding balance for the plan year. The following example illustrates the situation described in this A-7: (a) The facts are the same as in the example in A-3 of this notice, except that the plan sponsor realizes that the December 31, 2020, contribution that was made would result in an unpaid minimum required contribution for 2019 and wishes to make a final contribution on January 1, 2021. However, the 2021 effective interest rate is not known as of the date of the contribution. (b) Under this A-7, the amount necessary to avoid an unpaid minimum required contribution for 2019 is determined using the highest of the three segment rates for the 2021 plan year in accordance with the rules of § 1.436-1(f)(2)(i)(A). For purposes of this example, it is assumed that the highest of the three segment rates for the 2021 plan year is 5.45%. Therefore, Bulletin No. 2020–35 the amount of the contribution needed to avoid an unpaid minimum required contribution if made on January 1, 2021, is $17,810 ($15,939 x 1.0575(258/366 + 365/365) x 1.0545(108/366)). (c) Later during 2021, the 2021 effective interest rate is determined to be 5.15%. The $17,810 contribution made on January 1, 2021, results in $15,953 ($17,810 ÷ 1.0515(108/366) ÷ 1.0575(258/366 + 365/365) ) toward the 2019 minimum required contribution. As a result, the plan sponsor has excess contributions for 2019, which have a present value as of January 1, 2019, of $14 ($15,953 - $15,939). This amount, adjusted for interest in accordance with § 1.430(f)-1(b)(1)(iv), may be added to the prefunding balance as of January 1, 2020. Q-8: If a plan sponsor makes a contribution for a plan year after the original due date for the plan year, but on or before the extended due date under § 3608(a) of the CARES Act, how is it reported on Schedule SB of Form 5500? A-8: Except as provided in this A-8, there are no special rules for reporting contributions that are made for a plan year after the original due date for the plan year but on or before the extended due date under § 3608(a) of the CARES Act. Thus, a plan’s actuary may not report contributions on Schedule SB of Form 5500 that will be made after the actuary signs the Schedule SB. If any contributions are made after the actuary signs the Schedule SB and the Form 5500 for a plan year has been filed but before the extended due date under § 3608(a) of the CARES Act, then the contributions may be designated as for that prior plan year only if an amended Form 5500 that includes an amended Schedule SB reflecting those contributions is filed. In addition, if a plan sponsor makes a contribution for a plan year (including a quarterly installment) after the original due date for that contribution but on or before the extended due date under § 3608(a) of the CARES Act, the plan’s actuary must attach to the Schedule SB a schedule supporting the line 19 entry for discounted employer contributions showing the dates and amounts of individual contributions, the year to which the contributions (or portion of the individual contributions) are applied, the effective interest rate or rates that apply to those contributions (including the effective rate of interest for the Bulletin No. 2020–35 plan year in which a payment subject to § 3608(a) of the CARES Act occurs), the 5 percentage point increase that applies for late quarterly installments, the periods during which each such rate applies, and the interest-adjusted employer contributions for the plan year. This schedule must be attached even if the contributions were made by the due date under § 3608(a) of the CARES Act. Q-9: Is a contribution for a plan year that is made after the original due date for the plan year (but on or before the extended due date for the plan year under § 3608(a) of the CARES Act) taken into account for purposes of determining the value of plan assets for a plan year following the plan year for which the contribution is made? A-9: Yes, for purposes of § 430, a contribution that is made after the original due date for a plan year (but on or before the extended due date for the plan year under § 3608(a) of the CARES Act) is taken into account as of a valuation date for a plan year after the plan year for which the contribution was made. Under § 1.430(g)1(d)(1)(i), for purposes of determining the value of plan assets, if an employer makes a contribution to the plan after the valuation date for the current plan year and the contribution is for an earlier plan year, then the present value of the contribution determined as of that valuation date is taken into account as an asset of the plan as of the valuation date, provided the contribution is made before a specified deadline. The specified deadline is the deadline for contributions under § 430(j)(1) for the plan year immediately preceding the current plan year. However, that deadline is extended by § 3608(a)(1) of the CARES Act. Furthermore, the interest adjustment rules of § 3608(a)(2) of the CARES Act (as described in A-2 of this notice) override the discounting rules that apply generally for this purpose. Note, however, under § 1.436-1(h)(4)(i)(B), certification of the AFTAP for a plan year must not take into account contributions that are expected to be made after the certification date. The following example illustrates the application of these rules: (a) Plan C has a plan year that begins on October 1 and ends on September 30, and a valuation date that is the first day of the plan year. A contribution of $1,000,000 is 473 made on December 31, 2020, for the plan year beginning on October 1, 2018. (b) As of October 1, 2019 (the valuation date for the plan year following the plan year for which the December 31, 2020, contribution was made), the present value of the contribution is included in plan assets for purposes of § 430 as a contribution receivable. That present value is determined by discounting the contribution from December 31, 2020, to June 15, 2020 (the original due date for the minimum required contribution for the plan year), at the effective interest rate for the plan year beginning October 1, 2020 (the plan year in which the contribution is made), and further discounting the contribution from June 15, 2020, to October 1, 2019, at the effective interest rate for the plan year beginning October 1, 2018 (the plan year for which the contribution is made). (c) As of October 1, 2020 (the valuation date for the second plan year following the plan year for which the December 31, 2020, contribution was made), the present value of the contribution is included in plan assets for purposes of § 430 as a contribution receivable. That present value is determined by discounting the contribution from December 31, 2020, to October 1, 2020, at the effective interest rate for the plan year beginning October 1, 2020 (the plan year in which the contribution is made). Q-10: Does the extended due date under § 3608(a) of the CARES Act change the date by which a plan sponsor may make an election to increase a prefunding balance or to use a prefunding balance or a funding standard carryover balance to offset the minimum funding requirement for a plan year? A-10: Yes, if the plan year is a plan year for which the extended due date for minimum required contributions under § 3608(a) of the CARES Act applies, then the deadline for a plan sponsor’s election to increase a prefunding balance or to use a prefunding balance or a funding standard carryover balance to offset the minimum required contribution for that plan year is extended to January 1, 2021. Q-11: Does the extended due date under § 3608(a) of the CARES Act change the date by which a contribution must be made in order to be deducted for a taxable year under § 404 of the Code? August 24, 2020 A-11: No, the extended due date under § 3608(a) of the CARES Act does not change the date by which a contribution must be made in order to be deducted for a taxable year under § 404 of the Code. Under § 404(a)(6), a taxpayer is deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of that taxable year and is made no later than the time prescribed by law for filing the return for that taxable year (including extensions). B. Use of prior year AFTAP for benefit restrictions Q-12: May a plan sponsor make an election under § 3608(b) of the CARES Act (to apply the AFTAP for the last plan year ending before January 1, 2020) for a plan with a plan year that is not a calendar year? A-12: Yes, a plan sponsor may make an election under § 3608(b) of the CARES Act for a plan year that includes any portion of calendar year 2020. If the election is made for such a plan year, the AFTAP that applies for the plan year pursuant to the election is the AFTAP certified for the last plan year that ends on or before December 31, 2019. For example, if a plan sponsor makes an election under § 3608(b) of the CARES Act for a plan year that runs from July 1, 2019, to June 30, 2020, then the AFTAP that applies to determine benefit limitations under § 436 of the Code for that plan year is the certified AFTAP from the plan year that ends on June 30, 2019. In addition, that plan sponsor may separately elect to use that same AFTAP for the plan year that begins on July 1, 2020. Q-13: What procedures must a plan sponsor follow for making an election under § 3608(b) of the CARES Act? A-13: The election described in § 3608(b) of the CARES Act must be made using the procedures that apply for elections relating to funding balances specified in § 1.430(f)-1(f)(1)(i). Thus, the plan sponsor must provide written notification of the election to the plan’s actuary and the plan administrator. However, a plan sponsor’s election made using a different procedure will not be treated as invalid provided that, by September 30, 2020, the plan sponsor complies with the require- August 24, 2020 ment described in the first sentence of this A-13. Q-14: If a plan’s actuary has not certified the plan’s AFTAP for a plan year before the plan sponsor makes an election under § 3608(b) of the CARES Act, what is the effect of the election for purposes of the presumption rules of § 436(h) of the Code? A-14: If a plan’s actuary has not certified the plan’s AFTAP for a plan year before the plan sponsor makes the election under § 3608(b) of the CARES Act, then the plan sponsor’s election is treated as a certification of the AFTAP for purposes of the presumption rules of § 436(h) of the Code. Thus, beginning with the date of the election, the AFTAP for the last plan year ending on or before December 31, 2019, applies for the plan year for which the election is made, rather than any presumed AFTAP determined under § 1.4361(h)(1), (2), or (3). The following example illustrates the operation of this rule: (a) Plan B, which is not a collectively bargained plan, has a plan year that is a calendar year. On September 30, 2019, the actuary for Plan B certified the 2019 AFTAP to be 82%. On April 30, 2020, before the actuary has certified the AFTAP for 2020, the plan sponsor makes an election under § 3608(b) of the CARES Act to apply the 2019 AFTAP to the 2020 plan year. (b) Section 1.436-1(h)(2) applies to the plan (because, as of April 1, 2020, the plan’s actuary has not certified the plan’s AFTAP for 2020 and the AFTAP for 2019 was at least 80 percent and less than 90 percent). Accordingly, under § 1.436-1(h) (2)(iii), the presumed AFTAP for 2020 is reduced to 72 percent beginning on April 1, 2020. (c) The plan sponsor’s election under § 3608(b) of the CARES Act is treated as a certification of the plan’s AFTAP for the plan year. Accordingly, under § 1.4361(h)(2)(v), the 2019 AFTAP of 82 percent is used for the plan beginning April 30, 2020. Q-15: Is a plan’s actuary required to certify the plan’s AFTAP for a plan year for which the plan sponsor makes the election under § 3608(b) of the CARES Act? A-15: A plan’s actuary generally is required to certify the plan’s AFTAP for a plan year for which the plan sponsor makes the election under § 3608(b) of the 474 CARES Act. This is because, as provided in A-18 of this notice, the certified AFTAP generally is relevant for the next plan year. However, if the plan sponsor makes the election under § 3608(b) of the CARES Act for a plan year that begins in 2019 and ends in 2020 and also makes an election for the next plan year, then the actuary is not required to certify the plan’s AFTAP for the plan year that begins in 2019. If the plan’s actuary has certified an AFTAP for a plan year, then the Schedule SB of Form 5500 for that plan year should reflect the certified AFTAP. Without regard to whether the plan’s actuary has certified an AFTAP for a plan year, if the plan sponsor made an election under § 3608(b) of the CARES Act, then the plan’s actuary should attach to the Schedule SB a statement relating to the line 15 entry stating that the plan sponsor made that election, the date of that election, and the AFTAP that applied for the plan year pursuant to the election. Q-16: If a plan’s actuary certified the plan’s AFTAP for a plan year for which the plan sponsor later makes the election under § 3608(b) of the CARES Act, what is the effect of that certification? A-16: If a plan’s actuary certified the plan’s AFTAP for a plan year before the plan sponsor makes the election under § 3608(b) of the CARES Act, then the plan sponsor’s election is treated as a subsequent determination of the AFTAP for that plan year. However, pursuant to § 1.4361(h)(4)(iii)(C)(9) and this notice, the plan sponsor’s election is eligible for deemed immaterial treatment (and for purposes of § 1.436-1(h)(4)(iii)(C), the plan sponsor’s election is treated as the recertification on the part of the actuary that is otherwise required for deemed immaterial treatment pursuant to § 1.436-1(h)(4)(v)(D)). Thus, the AFTAP that applies pursuant to the plan sponsor’s election is applied on a prospective basis beginning with the date of the election. If a plan’s actuary certifies the plan’s AFTAP for a plan year after the plan sponsor makes the election under § 3608(b) of the CARES Act for that plan year, then that certified AFTAP does not apply for that plan year unless the plan sponsor revokes the election. Any revocation must be made using the same procedures as the election, and, in that case, the certified Bulletin No. 2020–35 AFTAP is treated as a subsequent determination of the AFTAP that is not eligible for deemed immaterial treatment under § 1.436-1(h)(4)(iii)(C). Q-17: How does the restriction on plan amendments and unpredictable contingent event benefits apply if the AFTAP that applies is pursuant to a plan sponsor’s election under § 3608(b) of the CARES Act? A-17: If the AFTAP that applies is pursuant to a plan sponsor’s election under § 3608(b) of the CARES Act, then the restriction on plan amendments and unpredictable contingent event benefits is applied using the rules of § 1.436-1(g) (2) through (4) (which apply for the period in a plan year during which a § 436(h) presumption applies), except that the AFTAP that applies pursuant to the plan sponsor’s election is substituted for the presumed AFTAP. Thus, for example, the AFTAP that applies pursuant to the plan sponsor’s election will be used to calculate a presumed adjusted funding target pursuant to § 1.436-1(g)(2)(ii) and an inclusive presumed AFTAP as described in § 1.436-1(g)(2)(iii). The following example illustrates the application of the rules described in this A-17: (a) The facts are the same as in the example in A-14 of this notice. Additionally, as of January 1, 2020, Plan B has assets of $8,600,000, and a prefunding balance of $400,000. During the period January 1, 2020, through June 30, 2020, the plan’s actuary did not certify the plan’s AFTAP for 2020, no contributions were made for 2019, no § 436 contributions were made, and the plan sponsor made no elections under § 430(f). Plan B’s sponsor amends the plan to increase benefits effective on July 1, 2020. The amendment would increase Plan B’s funding target as of January 1, 2020, by $500,000. (b) The determination of whether the amendment is permitted to take effect is made by applying the rules of § 1.4361(g)(2) through (4) but substituting the elected AFTAP of 82% for the presumed AFTAP. Thus, this determination is made based on a comparison of the presumed adjusted funding target (calculated using an AFTAP of 82%) with the updated interim value of adjusted plan assets. (c) Plan B’s interim value of adjusted plan assets as of the valuation date is Bulletin No. 2020–35 $8,200,000 (that is, $8,600,000 minus the prefunding balance of $400,000). Because there were no events that must be reflected in an update to the interim value of adjusted plan assets under the rules of § 1.436-1(g)(2)(iii)(A), the updated interim value of adjusted plan assets remains $8,200,000. Prior to reflecting the amendment, Plan B’s presumed adjusted funding target as of January 1, 2020, is $10,000,000 ($8,200,000, divided by the AFTAP of 82%). Increasing Plan B’s presumed adjusted funding target by $500,000 to reflect the amendment results in an inclusive presumed adjusted funding target of $10,500,00 and would result in an AFTAP of 78% (that is, the updated interim value of adjusted plan assets as of January 1, 2020, of $8,200,000 divided by the inclusive presumed adjusted funding target of $10,500,000). (d) Because Plan B’s AFTAP was over 80% prior to taking the amendment into account but would be less than 80% if the amendment were taken into account, § 436(c) prohibits the plan amendment from taking effect unless the updated interim value of adjusted plan assets is increased so that the AFTAP would equal 80%. This would require an increase of $200,000 (that is, 80% of the presumed adjusted funding target of $10,500,000 less the interim value of adjusted plan assets of $8,200,000). Therefore, the plan sponsor may either elect to reduce Plan B’s prefunding balance as of January 1, 2020, by $200,000, or make a $200,000 § 436 contribution (with interest to the date of payment) in order to increase the AFTAP to 80% (that is, an updated interim value of adjusted plan assets as of January 1, 2020, of $8,400,000 divided by the inclusive presumed adjusted funding target of $10,500,000). Q-18: Does the AFTAP that applies pursuant to a plan sponsor’s election for a plan year apply for purposes of the presumptions under § 436(h) used in a subsequent plan year? A-18: The AFTAP that applies pursuant to a plan sponsor’s election for a plan year generally will not apply for purposes of the presumptions under § 436(h) used in a subsequent plan year. Instead, the actual AFTAP for the plan year that was certified by the plan’s actuary generally is used for purposes of applying the pre- 475 sumption rules under § 436(h) for the subsequent plan year. If, taking into account an election made under § 3608(b) of the CARES Act for a plan year, no benefit limitation applied to a plan on the last day of the plan year, then there is no presumption of continued underfunding under § 1.436-1(h)(1) as of the beginning of the subsequent plan year and the rules of § 1.436-1(g)(3) apply. Under those rules, no benefit limitation would apply under § 436(d) and (e) during the first three months of the subsequent plan year. However, under § 1.436-1(g)(3)(ii), the limitations on unpredictable contingent event benefits and plan amendments that increase benefit liabilities must be applied during that period, based on the inclusive presumed adjusted funding target determined using the prior plan year’s certified AFTAP (as opposed to the AFTAP that applied for that prior plan year pursuant to an election under § 3608(b) of the CARES Act). If a benefit limitation applied to a plan on the last day of the plan year for which an election under § 3608(b) of the CARES Act is made, then the rules providing a presumption of continued underfunding under § 1.436-1(h)(1) apply. Thus, as of the beginning of the subsequent plan year, the benefit limitations are applied based on a presumed AFTAP that is equal to the certified AFTAP for the plan year for which the election was made (rather than the AFTAP that applied for that plan year pursuant to an election under § 3608(b) of the CARES Act). This presumed AFTAP is used until the earliest of the four events specified in § 1.436‑1(h)(1)(iv)(A) through (D). See A-14 of this notice for the rule that treats the plan sponsor’s election under § 3608(b) of the CARES Act as a certification described in § 1.436‑1(h)(1)(iv)(D). Without regard to whether a benefit limitation applied to a plan on the last day of the plan year for which an election under § 3608(b) of the CARES Act is made, if a plan’s actuary has not certified an AFTAP for the subsequent plan year before the first day of the fourth month of that year (and the plan sponsor has not made an election under § 3608(b) of the CARES Act for that plan year by that date), then the rules under § 1.436-1(h)(2) are applied based on the certified AFTAP for the plan year for which the election was made (rather than the AFTAP that applied for the plan year August 24, 2020 pursuant to an election under § 3608(b) of the CARES Act). For example, if for a calendar year plan year, the plan sponsor made an election under § 3608(b) of the CARES Act to use the 2019 AFTAP of 82% for 2020, but the plan actuary certified the AFTAP for 2020 at 81%, then under § 1.436-1(h)(2)(i), the plan will be subject to limitations of § 1.436-1(d)(3) beginning April 1, 2021, based on a presumed AFTAP of 71% for 2020 (the certified AFTAP for 2020 reduced by 10 percentage points), unless the actuary has certified an AFTAP for 2021 by that date. In order to properly reflect § 436(h) (3) in light of the CARES Act, the plan year following a plan year for which an election under § 3608(b) of the CARES Act is made must be treated as the first effective plan year, so that the special rule of § 1.436-1(h)(2)(ii) applies. Thus, if in the example in the preceding paragraph of this A-18, the plan’s actuary certified an AFTAP for 2020 of 78%, then beginning April 1, 2021, the plan will be subject to the limitations of § 1.436-1(d)(3) based on a presumed AFTAP of 68% (the certified AFTAP for 2020 reduced by 10 percentage points), unless the plan’s actuary has certified an AFTAP for 2021 by that date. Paperwork Reduction Act The collections of information contained in this notice have been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. § 3507) under control number 1545-2095. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. The collections of information in this notice are in A-13 of this notice. The collections of information are required to implement the application of § 3608 of the CARES Act. The collections of information are mandatory for those plan sponsors making an election under § 3608 of the CARES Act. The likely respondents are sponsors of single-employer defined benefit plans. Any potential changes on burden will be reported through the renewal of the current OMB approval numbers. August 24, 2020 Estimates of the annualized cost to respondents are not available at this time. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by § 6103. required minimum distributions to age 72 for employees born after June 30, 1949. To assist with the implementation of the modified safe harbor explanations, this notice includes an appendix with two model safe harbor explanations: one for distributions that are not from a designated Roth account, and the other for distributions from a designated Roth account. Drafting information II. BACKGROUND The principal author of this notice is Tom Morgan of the Office of the Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). However, other personnel from the IRS participated in the development of this guidance. For further information regarding this notice, contact Mr. Morgan or Linda Marshall at 202-317-6700 (not a toll-free number). A. Section 402(f) Safe Harbor Explanations – Eligible Rollover Distributions Notice 2020-62 I. PURPOSE This notice modifies the two safe harbor explanations in Notice 2018-74, 2018-40 I.R.B. 529, that may be used to satisfy the requirement under § 402(f) of the Internal Revenue Code (Code) that certain information be provided to recipients of eligible rollover distributions. The safe harbor explanations as modified by this notice take into consideration certain legislative changes, including changes related to the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), which was enacted as part of the Further Consolidated Appropriations Act, 2020, Pub. L. 116-94, 133 Stat. 2534 (2019). The SECURE Act adds § 72(t)(2)(H) of the Code as a new exception to the 10% additional tax under § 72(t)(1) for qualified birth or adoption distributions. The SECURE Act also includes an amendment to § 401(a)(9)(C)(i) (I) of the Code that increases the age for 476 Section 402(f) requires the plan administrator of a plan qualified under § 401(a) to provide the written explanation described in § 402(f)(1) to any recipient of an eligible rollover distribution, as defined in § 402(c)(4). In addition, §§ 403(a)(4) (B) and 457(e)(16)(B) require the plan administrator of a § 403(a) plan, or an eligible § 457(b) plan maintained by a governmental employer described in § 457(e) (1)(A), to provide the written explanation to any recipient of an eligible rollover distribution. Further, § 403(b)(8)(B) requires a payor under a § 403(b) plan to provide the written explanation to any recipient of an eligible rollover distribution. Section 1.402(f)-1, Q&A-1(a), provides that the plan administrator of a qualified plan is required, within a reasonable period of time before making an eligible rollover distribution, to provide the distributee with the written explanation described in § 402(f) (§ 402(f) notice). Notice 2018-74 sets forth two safe harbor explanations that reflect relevant law as of September 19, 2018: one safe harbor explanation is for payments not from a designated Roth account and the other safe harbor explanation is for payments from a designated Roth account. Notice 2018-74 provides that the safe harbor explanations may be used by plan administrators and payors to satisfy § 402(f) to the extent that the explanations accurately reflect current law. B. Recent Statutory Changes Related to Distributions 1. Qualified Birth or Adoption Distributions Section 72(t)(1) generally provides for a 10% additional tax on a distribution Bulletin No. 2020–35 from a qualified retirement plan, unless the distribution qualifies for one of the exceptions in § 72(t)(2). Section 113 of the SECURE Act amended § 72(t)(2) of the Code to add § 72(t)(2)(H), which permits an individual to receive up to $5,000 for a qualified birth or adoption distribution from an applicable eligible retirement plan (defined in § 72(t)(2)(H)(vi)(I) as an eligible retirement plan as defined in § 402(c)(8)(B) other than a defined benefit plan). The distribution is not subject to the 10% additional tax under § 72(t)(1) to the extent it meets the requirements of a qualified birth or adoption distribution. A qualified birth or adoption distribution is defined in § 72(t)(2)(H)(iii)(I) as any distribution from an applicable eligible retirement plan to an individual if made during the 1-year period beginning on the date on which the child of the individual is born or on which the legal adoption by the individual of an eligible adoptee is finalized. Section 72(t)(2)(H)(v)(I) provides that the individual may recontribute a qualified birth or adoption distribution (not to exceed the amount of the distribution) to an applicable eligible retirement plan in which the taxpayer is a beneficiary and to which a rollover can be made. However, § 72(t)(2)(H)(vi)(II) provides that a qualified birth or adoption distribution is not treated as an eligible rollover distribution for purposes of the direct rollover rules of § 401(a)(31), the notice requirement under § 402(f), or the mandatory withholding rules under § 3405. Thus, although a qualified birth or adoption distribution generally may be recontributed to an applicable eligible retirement plan, a plan administrator is not required to provide a § 402(f) notice to a recipient of a qualified birth or adoption distribution. 2. Required Minimum Distributions Section 114 of the SECURE Act amended § 401(a)(9) of the Code to change the required beginning date applicable to § 401(a) plans and other eligible retirement plans described in § 402(c)(8), including a § 401(a) qualified plan, a § 403(a) annuity plan, a § 403(b) annuity contract, a § 457(b) plan maintained by a governmental employer, and an individual retirement Bulletin No. 2020–35 account or annuity (IRA) described in § 408(a) or (b). The new required beginning date for an employee or an IRA owner is April 1 of the calendar year following the calendar year in which the individual attains age 72, rather than April 1 of the calendar year following the calendar year in which the individual attains age 70½. This amendment to § 401(a)(9) is effective for distributions required to be made after December 31, 2019, with respect to individuals who will attain age 70½ after that date. As a result of this change, employees and IRA owners who will attain age 70½ in 2020 will not have a required beginning date of April 1, 2021. 3. Coronavirus-related Distributions Section 2202(a) of the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. 116-136, 134 Stat. 281 (2020) (CARES Act) permits an individual to receive a coronavirus-related distribution from an eligible retirement plan (as defined in § 402(c)(8)(B)). Section 2202(a)(4)(A) of the CARES Act defines a coronavirus-related distribution as any distribution from an eligible retirement plan made on or after January 1, 2020, and before December 31, 2020, to a qualified individual. Section 2202(a)(2) of the CARES Act limits the amount of the aggregate distributions from all eligible retirement plans that can be treated as coronavirus-related distributions to no more than $100,000. A coronavirus-related distribution under section 2202(a) of the CARES Act is not subject to the 10% additional tax under § 72(t)(1). In addition, the coronavirus-related distribution may be included in gross income ratably over the 3-year period beginning with the taxable year of the distribution. Section 2202(a)(3) of the CARES Act provides that a qualified individual may recontribute a coronavirus-related distribution (not to exceed the amount of the distribution) to an applicable eligible retirement plan in which the taxpayer is a beneficiary and to which a rollover can be made. However, a coronavirus-related distribution is not an eligible rollover distribution for purposes of the direct rollover rules of § 401(a)(31), the notice requirement under § 402(f), or the mandatory withholding rules under § 3405. Thus, although a coronavirus-related dis- 477 tribution generally may be recontributed to an applicable eligible retirement plan, a plan administrator is not required to provide a § 402(f) notice to a recipient of a coronavirus-related distribution. For more information relating to section 2202 of the CARES Act, see Notice 2020-50, 2020-28 I.R.B. 35. III. MODIFICATIONS TO THE SAFE HARBOR EXPLANATIONS Two updated safe harbor explanations are appended to this notice (see the Appendix). The safe harbor explanations modify the safe harbor explanations in Notice 2018-74 to reflect certain legislative changes made after October 1, 2018, including: (1) the exception to the 10% additional tax under § 72(t)(1) for qualified birth or adoption distributions, and (2) the increase to age 72 for minimum required distributions for employees born after June 30, 1949. The safe harbor explanations also include other minor modifications to improve their clarity, including adding that payments of certain premiums for health and accident insurance are not eligible rollover distributions, rearranging bullets for readability, and spelling out acronyms when first used. The updated safe harbor explanations provided in this notice may be used by plan administrators and payors to satisfy § 402(f). However, the updated safe harbor explanations will not satisfy § 402(f) to the extent the explanations are no longer accurate because of a change in the relevant law occurring after August 6, 2020. The first safe harbor explanation reflects the rules relating to distributions not from a designated Roth account. Thus, the first safe harbor explanation should be used only for a distribution that is not from a designated Roth account. The second safe harbor explanation reflects the rules relating to distributions from a designated Roth account. Thus, the second safe harbor explanation should be used only for a distribution from a designated Roth account. Both explanations should be provided to a participant if the participant is eligible to receive eligible rollover distributions from both a designated Roth account and an account other than a designated Roth account. August 24, 2020 The safe harbor explanation in this notice for distributions not from a designated Roth account meets the requirements of § 402(f) for an eligible rollover distribution that is not from a designated Roth account if provided to the recipient of the eligible rollover distribution within a reasonable period of time before the distribution is made. Similarly, the safe harbor explanation in this notice for distributions from a designated Roth account meets the requirements of § 402(f) for an eligible rollover distribution from a designated Roth account if provided to the recipient of the eligible rollover distribution within a reasonable period of time before the distribution is made. Section 1.402(f)-1, Q&A-2, provides, in general, that a reasonable period of time for providing an explanation is no less than 30 days (subject to waiver) and no more than 90 days before the date on which the distribution is made. However, proposed § 1.402(f)-1, Q&A-2(a), pursuant to section 1102(a)(1)(B) of the Pension Protection Act of 2006, Pub. L. 109-280, 120 Stat. 780 (2006), provides that a notice required to be provided under § 402(f) may be provided to a participant as much as 180 days before the date on which the distribution is August 24, 2020 made (or the annuity starting date). These proposed regulations further provide that, with respect to the extended period for notices, plans may rely on the proposed regulations for notices provided during the period beginning on the first day of the first plan year beginning on or after January 1, 2007, and ending on the effective date of final regulations. Thus, the § 402(f) notice may be provided as many as 180 days before the date on which the distribution is made (or the annuity starting date). A plan administrator or payor may customize a safe harbor explanation by omitting any information that does not apply to the plan. For example, if the plan does not hold after-tax employee contributions, it would be appropriate to eliminate the section “If your payment includes after-tax contributions” in the explanation for payments not from a designated Roth account. Similarly, if the plan does not provide for distributions of employer stock or other employer securities, it would be appropriate to eliminate the section “If your payment includes employer stock that you do not roll over.” Other information that may not be relevant to a particular plan includes, for example, the sections “If your payment is from a governmental section 478 457(b) plan” and “If you are an eligible retired public safety officer and your payment is used to pay for health coverage or qualified long-term care insurance.” In addition, the plan administrator or payor may provide additional information with a safe harbor explanation if the information is not inconsistent with § 402(f). Alternatively, a plan administrator or payor may satisfy § 402(f) by providing an explanation that is different from a safe harbor explanation. Any explanation must include the information required by § 402(f) and must be written in a manner designed to be easily understood. IV. EFFECT ON OTHER DOCUMENTS Notice 2018-74 is modified. DRAFTING INFORMATION The principal author of this notice is Vernon Carter of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxation). For further information regarding this notice, contact Mr. Carter at (202) 317-6799 (not a toll-free number). Bulletin No. 2020–35 Appendix   For Payments Not From a Designated Roth Account YOUR ROLLOVER OPTIONS You are receiving this notice because all or a portion of a payment you are receiving from the [INSERT NAME OF PLAN] (the “Plan”) is eligible to be rolled over to an IRA or an employer plan. This notice is intended to help you decide whether to do such a rollover. This notice describes the rollover rules that apply to payments from the Plan that are not from a designated Roth account (a type of account in some employer plans that is subject to special tax rules). If you also receive a payment from a designated Roth account in the Plan, you will be provided a different notice for that payment, and the Plan administrator or the payor will tell you the amount that is being paid from each account. Rules that apply to most payments from a plan are described in the “General Information About Rollovers” section. Special rules that only apply in certain circumstances are described in the “Special Rules and Options” section. GENERAL INFORMATION ABOUT ROLLOVERS How can a rollover affect my taxes? You will be taxed on a payment from the Plan if you do not roll it over. If you are under age 59½ and do not do a rollover, you will also have to pay a 10% additional income tax on early distributions (generally, distributions made before age 59½), unless an exception applies. However, if you do a rollover, you will not have to pay tax until you receive payments later and the 10% additional income tax will not apply if those payments are made after you are age 59½ (or if an exception to the 10% additional income tax applies). What types of retirement accounts and plans may accept my rollover? You may roll over the payment to either an IRA (an individual retirement account or individual retirement annuity) or an employer plan (a tax-qualified plan, section 403(b) plan, or governmental section 457(b) plan) that will accept the rollover. The rules of the IRA or employer plan that holds the rollover will determine your investment options, fees, and rights to payment from the IRA or employer plan (for example, IRAs are not subject to spousal consent rules, and IRAs may not provide loans). Further, the amount rolled over will become subject to the tax rules that apply to the IRA or employer plan. How do I do a rollover? There are two ways to do a rollover. You can do either a direct rollover or a 60-day rollover. If you do a direct rollover, the Plan will make the payment directly to your IRA or an employer plan. You should contact the IRA sponsor or the administrator of the employer plan for information on how to do a direct rollover. If you do not do a direct rollover, you may still do a rollover by making a deposit into an IRA or eligible employer plan that will accept it. Generally, you will have 60 days after you receive the payment to make the deposit. If you do not do a direct rollover, the Plan is required to withhold 20% of the payment for federal income taxes (up to the amount of cash and property received other than employer stock). This means that, in order to roll over the entire payment in a 60-day rollover, you must use other funds to make up for the 20% withheld. If you do not roll over the entire amount of the payment, the portion not rolled over will be taxed and will be subject to the 10% additional income tax on early distributions if you are under age 59½ (unless an exception applies). How much may I roll over? If you wish to do a rollover, you may roll over all or part of the amount eligible for rollover. Any payment from the Plan is eligible for rollover, except: • Certain payments spread over a period of at least 10 years or over your life or life expectancy (or the joint lives or joint life expectancies of you and your beneficiary); Bulletin No. 2020–35 479 August 24, 2020 • • • • • • • • • Required minimum distributions after age 70½ (if you were born before July 1, 1949), after age 72 (if you were born after June 30, 1949), or after death; Hardship distributions; Payments of employee stock ownership plan (ESOP) dividends; Corrective distributions of contributions that exceed tax law limitations; Loans treated as deemed distributions (for example, loans in default due to missed payments before your employment ends); Cost of life insurance paid by the Plan; Payments of certain automatic enrollment contributions that you request to withdraw within 90 days of your first contribution; Amounts treated as distributed because of a prohibited allocation of S corporation stock under an ESOP (also, there generally will be adverse tax consequences if you roll over a distribution of S corporation stock to an IRA); and Distributions of certain premiums for health and accident insurance. The Plan administrator or the payor can tell you what portion of a payment is eligible for rollover. If I don’t do a rollover, will I have to pay the 10% additional income tax on early distributions? If you are under age 59½, you will have to pay the 10% additional income tax on early distributions for any payment from the Plan (including amounts withheld for income tax) that you do not roll over, unless one of the exceptions listed below applies. This tax applies to the part of the distribution that you must include in income and is in addition to the regular income tax on the payment not rolled over. The 10% additional income tax does not apply to the following payments from the Plan: • • • • • • • • • • • • • • • • Payments made after you separate from service if you will be at least age 55 in the year of the separation; Payments that start after you separate from service if paid at least annually in equal or close to equal amounts over your life or life expectancy (or the joint lives or joint life expectancies of you and your beneficiary); Payments from a governmental plan made after you separate from service if you are a qualified public safety employee and you will be at least age 50 in the year of the separation; Payments made due to disability; Payments after your death; Payments of ESOP dividends; Corrective distributions of contributions that exceed tax law limitations; Cost of life insurance paid by the Plan; Payments made directly to the government to satisfy a federal tax levy; Payments made under a qualified domestic relations order (QDRO); Payments of up to $5,000 made to you from a defined contribution plan if the payment is a qualified birth or adoption distribution; Payments up to the amount of your deductible medical expenses (without regard to whether you itemize deductions for the taxable year); Certain payments made while you are on active duty if you were a member of a reserve component called to duty after September 11, 2001 for more than 179 days; Payments of certain automatic enrollment contributions that you request to withdraw within 90 days of your first contribution; Payments excepted from the additional income tax by federal legislation relating to certain emergencies and disasters; and Phased retirement payments made to federal employees. If I do a rollover to an IRA, will the 10% additional income tax apply to early distributions from the IRA? If you receive a payment from an IRA when you are under age 59½, you will have to pay the 10% additional income tax on early distributions on the part of the distribution that you must include in income, unless an exception applies. In general, the exceptions to the 10% additional income tax for early distributions from an IRA are the same as the exceptions listed above for early distributions from a plan. However, there are a few differences for payments from an IRA, including: • • The exception for payments made after you separate from service if you will be at least age 55 in the year of the separation (or age 50 for qualified public safety employees) does not apply; The exception for qualified domestic relations orders (QDROs) does not apply (although a special rule applies under which, as part of a divorce or separation agreement, a tax-free transfer may be made directly to an IRA of a spouse or former spouse); and August 24, 2020 480 Bulletin No. 2020–35 • The exception for payments made at least annually in equal or close to equal amounts over a specified period applies without regard to whether you have had a separation from service. Additional exceptions apply for payments from an IRA, including: • • • Payments for qualified higher education expenses; Payments up to $10,000 used in a qualified first-time home purchase; and Payments for health insurance premiums after you have received unemployment compensation for 12 consecutive weeks (or would have been eligible to receive unemployment compensation but for self-employed status). Will I owe State income taxes? This notice does not address any State or local income tax rules (including withholding rules). SPECIAL RULES AND OPTIONS If your payment includes after-tax contributions After-tax contributions included in a payment are not taxed. If you receive a partial payment of your total benefit, an allocable portion of your after-tax contributions is included in the payment, so you cannot take a payment of only after-tax contributions. However, if you have pre-1987 after-tax contributions maintained in a separate account, a special rule may apply to determine whether the after-tax contributions are included in the payment. In addition, special rules apply when you do a rollover, as described below. You may roll over to an IRA a payment that includes after-tax contributions through either a direct rollover or a 60-day rollover. You must keep track of the aggregate amount of the after-tax contributions in all of your IRAs (in order to determine your taxable income for later payments from the IRAs). If you do a direct rollover of only a portion of the amount paid from the Plan and at the same time the rest is paid to you, the portion rolled over consists first of the amount that would be taxable if not rolled over. For example, assume you are receiving a distribution of $12,000, of which $2,000 is after-tax contributions. In this case, if you directly roll over $10,000 to an IRA that is not a Roth IRA, no amount is taxable because the $2,000 amount not rolled over is treated as being after-tax contributions. If you do a direct rollover of the entire amount paid from the Plan to two or more destinations at the same time, you can choose which destination receives the after-tax contributions. Similarly, if you do a 60-day rollover to an IRA of only a portion of a payment made to you, the portion rolled over consists first of the amount that would be taxable if not rolled over. For example, assume you are receiving a distribution of $12,000, of which $2,000 is after-tax contributions, and no part of the distribution is directly rolled over. In this case, if you roll over $10,000 to an IRA that is not a Roth IRA in a 60-day rollover, no amount is taxable because the $2,000 amount not rolled over is treated as being after-tax contributions. You may roll over to an employer plan all of a payment that includes after-tax contributions, but only through a direct rollover (and only if the receiving plan separately accounts for after-tax contributions and is not a governmental section 457(b) plan). You can do a 60-day rollover to an employer plan of part of a payment that includes after-tax contributions, but only up to the amount of the payment that would be taxable if not rolled over. If you miss the 60-day rollover deadline Generally, the 60-day rollover deadline cannot be extended. However, the IRS has the limited authority to waive the deadline under certain extraordinary circumstances, such as when external events prevented you from completing the rollover by the 60-day rollover deadline. Under certain circumstances, you may claim eligibility for a waiver of the 60-day rollover deadline by making a written self-certification. Otherwise, to apply for a waiver from the IRS, you must file a private letter ruling request with the IRS. Private letter ruling requests require the payment of a nonrefundable user fee. For more information, see IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs). If your payment includes employer stock that you do not roll over If you do not do a rollover, you can apply a special rule to payments of employer stock (or other employer securities) that are either attributable to after-tax contributions or paid in a lump sum after separation from service (or after age 59½, disability, or the participant’s death). Under the special rule, the net unrealized appreciation on the stock will not be taxed when distributed from the Plan Bulletin No. 2020–35 481 August 24, 2020 and will be taxed at capital gain rates when you sell the stock. Net unrealized appreciation is generally the increase in the value of employer stock after it was acquired by the Plan. If you do a rollover for a payment that includes employer stock (for example, by selling the stock and rolling over the proceeds within 60 days of the payment), the special rule relating to the distributed employer stock will not apply to any subsequent payments from the IRA or, generally, the Plan. The Plan administrator can tell you the amount of any net unrealized appreciation. If you have an outstanding loan that is being offset If you have an outstanding loan from the Plan, your Plan benefit may be offset by the outstanding amount of the loan, typically when your employment ends. The offset amount is treated as a distribution to you at the time of the offset. Generally, you may roll over all or any portion of the offset amount. Any offset amount that is not rolled over will be taxed (including the 10% additional income tax on early distributions, unless an exception applies). You may roll over offset amounts to an IRA or an employer plan (if the terms of the employer plan permit the plan to receive plan loan offset rollovers). How long you have to complete the rollover depends on what kind of plan loan offset you have. If you have a qualified plan loan offset, you will have until your tax return due date (including extensions) for the tax year during which the offset occurs to complete your rollover. A qualified plan loan offset occurs when a plan loan in good standing is offset because your employer plan terminates, or because you sever from employment. If your plan loan offset occurs for any other reason (such as a failure to make level loan repayments that results in a deemed distribution), then you have 60 days from the date the offset occurs to complete your rollover. If you were born on or before January 1, 1936 If you were born on or before January 1, 1936 and receive a lump sum distribution that you do not roll over, special rules for calculating the amount of the tax on the payment might apply to you. For more information, see IRS Publication 575, Pension and Annuity Income. If your payment is from a governmental section 457(b) plan If the Plan is a governmental section 457(b) plan, the same rules described elsewhere in this notice generally apply, allowing you to roll over the payment to an IRA or an employer plan that accepts rollovers. One difference is that, if you do not do a rollover, you will not have to pay the 10% additional income tax on early distributions from the Plan even if you are under age 59½ (unless the payment is from a separate account holding rollover contributions that were made to the Plan from a tax-qualified plan, a section 403(b) plan, or an IRA). However, if you do a rollover to an IRA or to an employer plan that is not a governmental section 457(b) plan, a later distribution made before age 59½ will be subject to the 10% additional income tax on early distributions (unless an exception applies). Other differences include that you cannot do a rollover if the payment is due to an “unforeseeable emergency” and the special rules under “If your payment includes employer stock that you do not roll over” and “If you were born on or before January 1, 1936” do not apply. If you are an eligible retired public safety officer and your payment is used to pay for health coverage or qualified long-term care insurance If the Plan is a governmental plan, you retired as a public safety officer, and your retirement was by reason of disability or was after normal retirement age, you can exclude from your taxable income Plan payments paid directly as premiums to an accident or health plan (or a qualified long-term care insurance contract) that your employer maintains for you, your spouse, or your dependents, up to a maximum of $3,000 annually. For this purpose, a public safety officer is a law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew. If you roll over your payment to a Roth IRA If you roll over a payment from the Plan to a Roth IRA, a special rule applies under which the amount of the payment rolled over (reduced by any after-tax amounts) will be taxed. In general, the 10% additional income tax on early distributions will not apply. However, if you take the amount rolled over out of the Roth IRA within the 5-year period that begins on January 1 of the year of the rollover, the 10% additional income tax will apply (unless an exception applies). If you roll over the payment to a Roth IRA, later payments from the Roth IRA that are qualified distributions will not be taxed (including earnings after the rollover). A qualified distribution from a Roth IRA is a payment made after you are age 59½ (or after your death or disability, or as a qualified first-time homebuyer distribution of up to $10,000) and after you have had a Roth IRA for at least August 24, 2020 482 Bulletin No. 2020–35 5 years. In applying this 5-year rule, you count from January 1 of the year for which your first contribution was made to a Roth IRA. Payments from the Roth IRA that are not qualified distributions will be taxed to the extent of earnings after the rollover, including the 10% additional income tax on early distributions (unless an exception applies). You do not have to take required minimum distributions from a Roth IRA during your lifetime. For more information, see IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), and IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). If you do a rollover to a designated Roth account in the Plan You cannot roll over a distribution to a designated Roth account in another employer’s plan. However, you can roll the distribution over into a designated Roth account in the distributing Plan. If you roll over a payment from the Plan to a designated Roth account in the Plan, the amount of the payment rolled over (reduced by any after-tax amounts directly rolled over) will be taxed. In general, the 10% additional income tax on early distributions will not apply. However, if you take the amount rolled over out of the Roth IRA within the 5-year period that begins on January 1 of the year of the rollover, the 10% additional income tax will apply (unless an exception applies). If you roll over the payment to a designated Roth account in the Plan, later payments from the designated Roth account that are qualified distributions will not be taxed (including earnings after the rollover). A qualified distribution from a designated Roth account is a payment made both after you are age 59½ (or after your death or disability) and after you have had a designated Roth account in the Plan for at least 5 years. In applying this 5-year rule, you count from January 1 of the year your first contribution was made to the designated Roth account. However, if you made a direct rollover to a designated Roth account in the Plan from a designated Roth account in a plan of another employer, the 5-year period begins on January 1 of the year you made the first contribution to the designated Roth account in the Plan or, if earlier, to the designated Roth account in the plan of the other employer. Payments from the designated Roth account that are not qualified distributions will be taxed to the extent of earnings after the rollover, including the 10% additional income tax on early distributions (unless an exception applies). If you are not a Plan participant Payments after death of the participant. If you receive a distribution after the participant’s death that you do not roll over, the distribution generally will be taxed in the same manner described elsewhere in this notice. However, the 10% additional income tax on early distributions and the special rules for public safety officers do not apply, and the special rule described under the section “If you were born on or before January 1, 1936” applies only if the deceased participant was born on or before January 1, 1936. I f you are a surviving spouse. If you receive a payment from the Plan as the surviving spouse of a deceased participant, you have the same rollover options that the participant would have had, as described elsewhere in this notice. In addition, if you choose to do a rollover to an IRA, you may treat the IRA as your own or as an inherited IRA.  n IRA you treat as your own is treated like any other IRA of yours, so that payments made to you before you are age 59½ will be A subject to the 10% additional income tax on early distributions (unless an exception applies) and required minimum distributions from your IRA do not have to start until after you are age 70½ (if you were born before July 1, 1949) or age 72 (if you were born after June 30, 1949). I f you treat the IRA as an inherited IRA, payments from the IRA will not be subject to the 10% additional income tax on early distributions. However, if the participant had started taking required minimum distributions, you will have to receive required minimum distributions from the inherited IRA. If the participant had not started taking required minimum distributions from the Plan, you will not have to start receiving required minimum distributions from the inherited IRA until the year the participant would have been age 70½ (if the participant was born before July 1, 1949) or age 72 (if the participant was born after June 30, 1949). I f you are a surviving beneficiary other than a spouse. If you receive a payment from the Plan because of the participant’s death and you are a designated beneficiary other than a surviving spouse, the only rollover option you have is to do a direct rollover to an inherited IRA. Payments from the inherited IRA will not be subject to the 10% additional income tax on early distributions. You will have to receive required minimum distributions from the inherited IRA. Payments under a QDRO. If you are the spouse or former spouse of the participant who receives a payment from the Plan under a QDRO, you generally have the same options and the same tax treatment that the participant would have (for example, you may roll over the payment to your own IRA or an eligible employer plan that will accept it). However, payments under the QDRO will not be subject to the 10% additional income tax on early distributions. Bulletin No. 2020–35 483 August 24, 2020 If you are a nonresident alien If you are a nonresident alien and you do not do a direct rollover to a U.S. IRA or U.S. employer plan, instead of withholding 20%, the Plan is generally required to withhold 30% of the payment for federal income taxes. If the amount withheld exceeds the amount of tax you owe (as may happen if you do a 60-day rollover), you may request an income tax refund by filing Form 1040NR and attaching your Form 1042-S. See Form W-8BEN for claiming that you are entitled to a reduced rate of withholding under an income tax treaty. For more information, see also IRS Publication 519, U.S. Tax Guide for Aliens, and IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. Other special rules If a payment is one in a series of payments for less than 10 years, your choice whether to do a direct rollover will apply to all later payments in the series (unless you make a different choice for later payments). If your payments for the year are less than $200 (not including payments from a designated Roth account in the Plan), the Plan is not required to allow you to do a direct rollover and is not required to withhold federal income taxes. However, you may do a 60-day rollover. Unless you elect otherwise, a mandatory cashout of more than $1,000 (not including payments from a designated Roth account in the Plan) will be directly rolled over to an IRA chosen by the Plan administrator or the payor. A mandatory cashout is a payment from a plan to a participant made before age 62 (or normal retirement age, if later) and without consent, where the participant’s benefit does not exceed $5,000 (not including any amounts held under the plan as a result of a prior rollover made to the plan). You may have special rollover rights if you recently served in the U.S. Armed Forces. For more information on special rollover rights related to the U.S. Armed Forces, see IRS Publication 3, Armed Forces’ Tax Guide. You also may have special rollover rights if you were affected by a federally declared disaster (or similar event), or if you received a distribution on account of a disaster. For more information on special rollover rights related to disaster relief, see the IRS website at www.irs.gov. FOR MORE INFORMATION You may wish to consult with the Plan administrator or payor, or a professional tax advisor, before taking a payment from the Plan. Also, you can find more detailed information on the federal tax treatment of payments from employer plans in: IRS Publication 575, Pension and Annuity Income; IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs); IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs); and IRS Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). These publications are available from a local IRS office, on the web at www.irs.gov, or by calling 1-800-TAX-FORM.  August 24, 2020 484 Bulletin No. 2020–35   For Payments From a Designated Roth Account YOUR ROLLOVER OPTIONS You are receiving this notice because all or a portion of a payment you are receiving from the [INSERT NAME OF PLAN] (the “Plan”) is eligible to be rolled over to a Roth IRA or designated Roth account in an employer plan. This notice is intended to help you decide whether to do a rollover. This notice describes the rollover rules that apply to payments from the Plan that are from a designated Roth account. If you also receive a payment from the Plan that is not from a designated Roth account, you will be provided a different notice for that payment, and the Plan administrator or the payor will tell you the amount that is being paid from each account. Rules that apply to most payments from a designated Roth account are described in the “General Information About Rollovers” section. Special rules that only apply in certain circumstances are described in the “Special Rules and Options” section. GENERAL INFORMATION ABOUT ROLLOVERS How can a rollover affect my taxes? After-tax contributions included in a payment from a designated Roth account are not taxed, but earnings might be taxed. The tax treatment of earnings included in the payment depends on whether the payment is a qualified distribution. If a payment is only part of your designated Roth account, the payment will include an allocable portion of the earnings in your designated Roth account. If the payment from the Plan is not a qualified distribution and you do not do a rollover to a Roth IRA or a designated Roth account in an employer plan, you will be taxed on the portion of the payment that is earnings. If you are under age 59½, a 10% additional income tax on early distributions (generally, distributions made before age 59½) will also apply to the earnings (unless an exception applies). However, if you do a rollover, you will not have to pay taxes currently on the earnings and you will not have to pay taxes later on payments that are qualified distributions. If the payment from the Plan is a qualified distribution, you will not be taxed on any part of the payment even if you do not do a rollover. If you do a rollover, you will not be taxed on the amount you roll over and any earnings on the amount you roll over will not be taxed if paid later in a qualified distribution. A qualified distribution from a designated Roth account in the Plan is a payment made after you are age 59½ (or after your death or disability) and after you have had a designated Roth account in the Plan for at least 5 years. In applying the 5-year rule, you count from January 1 of the year your first contribution was made to the designated Roth account. However, if you did a direct rollover to a designated Roth account in the Plan from a designated Roth account in another employer plan, your participation will count from January 1 of the year your first contribution was made to the designated Roth account in the Plan or, if earlier, to the designated Roth account in the other employer plan. What types of retirement accounts and plans may accept my rollover? You may roll over the payment to either a Roth IRA (a Roth individual retirement account or Roth individual retirement annuity) or a designated Roth account in an employer plan (a tax-qualified plan, section 403(b) plan, or governmental section 457 plan) that will accept the rollover. The rules of the Roth IRA or employer plan that holds the rollover will determine your investment options, fees, and rights to payment from the Roth IRA or employer plan (for example, Roth IRAs are not subject to spousal consent rules, and Roth IRAs may not provide loans). Further, the amount rolled over will become subject to the tax rules that apply to the Roth IRA or the designated Roth account in the employer plan. In general, these tax rules are similar to those described elsewhere in this notice, but differences include: • • • If you do a rollover to a Roth IRA, all of your Roth IRAs will be considered for purposes of determining whether you have satisfied the 5-year rule (counting from January 1 of the year for which your first contribution was made to any of your Roth IRAs). If you do a rollover to a Roth IRA, you will not be required to take a distribution from the Roth IRA during your lifetime and you must keep track of the aggregate amount of the after-tax contributions in all of your Roth IRAs (in order to determine your taxable income for later Roth IRA payments that are not qualified distributions). Eligible rollover distributions from a Roth IRA can only be rolled over to another Roth IRA. Bulletin No. 2020–35 485 August 24, 2020 How do I do a rollover? There are two ways to do a rollover. You can either do a direct rollover or a 60-day rollover. If you do a direct rollover, the Plan will make the payment directly to your Roth IRA or designated Roth account in an employer plan. You should contact the Roth IRA sponsor or the administrator of the employer plan for information on how to do a direct rollover. If you do not do a direct rollover, you may still do a rollover by making a deposit (generally within 60 days) into a Roth IRA, whether the payment is a qualified or nonqualified distribution. In addition, you can do a rollover by making a deposit within 60 days into a designated Roth account in an employer plan if the payment is a nonqualified distribution and the rollover does not exceed the amount of the earnings in the payment. You cannot do a 60-day rollover to an employer plan of any part of a qualified distribution. If you receive a distribution that is a nonqualified distribution and you do not roll over an amount at least equal to the earnings allocable to the distribution, you will be taxed on the amount of those earnings not rolled over, including the 10% additional income tax on early distributions if you are under age 59½ (unless an exception applies). If you do a direct rollover of only a portion of the amount paid from the Plan and a portion is paid to you at the same time, the portion directly rolled over consists first of earnings. If you do not do a direct rollover and the payment is not a qualified distribution, the Plan is required to withhold 20% of the earnings for federal income taxes (up to the amount of cash and property received other than employer stock). This means that, in order to roll over the entire payment in a 60-day rollover to a Roth IRA, you must use other funds to make up for the 20% withheld. How much may I roll over? If you wish to do a rollover, you may roll over all or part of the amount eligible for rollover. Any payment from the Plan is eligible for rollover, except: • • • • • • • • • • Certain payments spread over a period of at least 10 years or over your life or life expectancy (or the joint lives or joint life expectancies of you and your beneficiary); Required minimum distributions after age 70½ (if you were born before July 1, 1949), after age 72 (if you were born after June 30, 1949), or after death; Hardship distributions; Payments of employee stock ownership plan (ESOP) dividends; Corrective distributions of contributions that exceed tax law limitations; Loans treated as deemed distributions (for example, loans in default due to missed payments before your employment ends); Cost of life insurance paid by the Plan; Payments of certain automatic enrollment contributions that you request to withdraw within 90 days of your first contribution; and Amounts treated as distributed because of a prohibited allocation of S corporation stock under an ESOP (also, there generally will be adverse tax consequences if S corporation stock is held by an IRA); and Distributions of certain premiums for health and accident insurance. The Plan administrator or the payor can tell you what portion of a payment is eligible for rollover. If I don’t do a rollover, will I have to pay the 10% additional income tax on early distributions? If a payment is not a qualified distribution and you are under age 59½, you will have to pay the 10% additional income tax on early distributions with respect to the earnings allocated to the payment that you do not roll over (including amounts withheld for income tax), unless one of the exceptions listed below applies. This tax is in addition to the regular income tax on the earnings not rolled over. The 10% additional income tax does not apply to the following payments from the Plan: • • • Payments made after you separate from service if you will be at least age 55 in the year of the separation; Payments that start after you separate from service if paid at least annually in equal or close to equal amounts over your life or life expectancy (or the joint lives or joint life expectancies of you and your beneficiary); Payments from a governmental plan made after you separate from service if you are a qualified public safety employee and you will be at least age 50 in the year of the separation; August 24, 2020 486 Bulletin No. 2020–35 • • • • • • • • • • • • Payments made due to disability; Payments after your death; Payments of ESOP dividends; Corrective distributions of contributions that exceed tax law limitations; Cost of life insurance paid by the Plan; Payments made directly to the government to satisfy a federal tax levy; Payments made under a qualified domestic relations order (QDRO); Payments of up to $5,000 made to you from a defined contribution plan if the payment is a qualified birth or adoption distribution; Payments up to the amount of your deductible medical expenses (without regard to whether you itemize deductions for the taxable year); Certain payments made while you are on active duty if you were a member of a reserve component called to duty after September 11, 2001 for more than 179 days; Payments of certain automatic enrollment contributions that you request to withdraw within 90 days of your first contribution; and Payments excepted from the additional income tax by federal legislation relating to certain emergencies and disasters. If I do a rollover to a Roth IRA, will the 10% additional income tax apply to early distributions from the IRA? If you receive a payment from a Roth IRA when you are under age 59½, you will have to pay the 10% additional income tax on early distributions on the earnings paid from the Roth IRA, unless an exception applies or the payment is a qualified distribution. In general, the exceptions to the 10% additional income tax for early distributions from a Roth IRA listed above are the same as the exceptions for early distributions from a plan. However, there are a few differences for payments from a Roth IRA, including: • • • The exception for payments made after you separate from service if you will be at least age 55 in the year of the separation (or age 50 for qualified public safety employees) does not apply; The exception for qualified domestic relations orders (QDROs) does not apply (although a special rule applies under which, as part of a divorce or separation agreement, a tax-free transfer may be made directly to a Roth IRA of a spouse or former spouse); and The exception for payments made at least annually in equal or close to equal amounts over a specified period applies without regard to whether you have had a separation from service. Additional exceptions apply for payments from an IRA, including: • • • Payments for qualified higher education expenses; Payments up to $10,000 used in a qualified first-time home purchase; and Payments for health insurance premiums after you have received unemployment compensation for 12 consecutive weeks (or would have been eligible to receive unemployment compensation but for self‑employed status). Will I owe State income taxes? This notice does not address any State or local income tax rules (including withholding rul [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A30881a3c8d0a8065. Public record. Not legal advice.