Part III – Administrative, Procedural, and

Miscellaneous

Forthcoming Regulations Regarding the Deductibility of Payments by Partnerships and S Corporations for Certain State and Local Income Taxes

This notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the Internal Revenue Code. In addition, this notice provides guidance as to the interest

November 30, 2020 1454 Bulletin No. 2020–49

rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I).

YIELD CURVE AND SEGMENT RATES

Section 430 specifies the minimum funding requirements that apply to single-employer plans (except for CSEC plans under § 414(y)) pursuant to § 412. Section 430(h)(2) specifies the interest rates that must be used to determine a plan’s target normal cost and funding target. Under this provision, present value is generally determined using three 24-month average interest rates (“segment rates”), each of which applies to cash flows during specified periods. To the extent provided under § 430(h)(2)(C)(iv), these segment rates are adjusted by the applicable percentage of the 25-year average

segment rates for the period ending September 30 of the year preceding the calendar year in which the plan year begins. ¹ However, an election may be made under § 430(h)(2)(D)(ii) to use the monthly yield curve in place of the segment rates.

Notice 2007-81, 2007-44 I.R.B. 899, provides guidelines for determining the monthly corporate bond yield curve, and the 24-month average corporate bond segment rates used to compute the target normal cost and the funding target. Consistent with the methodology specified in Notice 2007-81, the monthly corporate bond yield curve derived from October 2020 data is in Table 2020-10 at the end of this notice. The spot first, second, and third segment rates for the month of October 2020 are, respectively, 0.54, 2.38, and 3.28. The 24-month average segment rates determined under § 430(h)(2)(C)(i) through (iii) must be adjusted pursuant to § 430(h)(2)(C)(iv) to be within the appli

cable minimum and maximum percentages of the corresponding 25-year average segment rates. For plan years beginning before 2021, the applicable minimum percentage is 90% and the applicable maximum percentage is 110%. For plan years beginning in 2021, the applicable minimum percentage is 85% and the applicable maximum percentage is 115%. The 25-year average segment rates for plan years beginning in 2019, 2020, and 2021 were published in Notice 2018-73, 201840 I.R.B. 526, Notice 2019-51, 2019-41 I.R.B. 866, and Notice 2020-72, 2020-40 I.R.B. 789, respectively.

24-MONTH AVERAGE CORPORATE BOND SEGMENT RATES

The three 24-month average corporate bond segment rates applicable for November 2020 without adjustment for the 25-year average segment rate limits are as follows:

24-Month Average Segment Rates Without 25-Year Average Adjustment Applicable Month First Segment Second Segment Third Segment November 2020 1.99 3.21 3.80

Based on § 430(h)(2)(C)(iv), the ber 2020, adjusted to be within the appli24-month averages applicable for Novem- cable minimum and maximum percentag

es of the corresponding 25-year average segment rates, are as follows:

Adjusted 24-Month Average Segment Rates For Plan Years Applicable First

Second Segment

First Segment

Third Segment

Beginning In

Applicable

Month

2019 November 2020 3.74 5.35 6.11

2020 November 2020 3.64 5.21 5.94

2021 November 2020 3.32 4.79 5.47

30-YEAR TREASURY SECURITIES INTEREST RATES

Section 431 specifies the minimum funding requirements that apply to multiemployer plans pursuant to § 412. Section 431(c)(6)(B) specifies a minimum amount for the full-funding limitation described in

§ 431(c)(6)(A), based on the plan’s current liability. Section 431(c)(6)(E)(ii)(I) provides that the interest rate used to calculate current liability for this purpose must be no more than 5 percent above and no more than 10 percent below the weighted average of the rates of interest on 30-year Treasury securities during the four-year period

ending on the last day before the beginning of the plan year. Notice 88-73, 1988-2 C.B. 383, provides guidelines for determining the weighted average interest rate. The rate of interest on 30-year Treasury securities for October 2020 is 1.57 percent. The Service determined this rate as the average of the daily determinations of yield on the

1 Pursuant to § 433(h)(3)(A), the 3rd segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount of the full funding limitation under § 433(c)(7)(C)).

Bulletin No. 2020–49 1455 November 30, 2020

30-year Treasury bond maturing in August ber 2020, the weighted average of the rates 2050. For plan years beginning in Novem- of interest on 30-year Treasury securities

and the permissible range of rates used to calculate current liability are as follows:

Permissible Range

90% to 105%

Treasury Weighted Average Rates For Plan Years 30-Year Treasury

Beginning In

30-Year Treasury Weighted Average

November 2020 2.39 2.15 to 2.51

MINIMUM PRESENT VALUE SEGMENT RATES

In general, the applicable interest rates

under § 417(e)(3)(D) are segment rates computed without regard to a 24-month average. Notice 2007-81 provides guidelines for determining the minimum pres

ent value segment rates. Pursuant to that notice, the minimum present value segment rates determined for October 2020 are as follows:

Minimum Present Value Segment Rates Month First Segment Second Segment Third Segment October 2020 0.54 2.38 3.28

DRAFTING INFORMATION

The principal author of this notice is Tom Morgan of the Office of the Asso

ciate 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 at 202-317-6700 or Paul Stern at 202-3178702 (not toll-free numbers).

November 30, 2020 1456 Bulletin No. 2020–49

Table 2020-10 Monthly Yield Curve for October 2020

Derived from October 2020 Data

Maturity Yield Maturity Yield Maturity Yield Maturity Yield Maturity Yield 0.5 0.15 20.5 3.07 40.5 3.30 60.5 3.39 80.5 3.44 1.0 0.28 21.0 3.08 41.0 3.31 61.0 3.40 81.0 3.44 1.5 0.39 21.5 3.09 41.5 3.31 61.5 3.40 81.5 3.44 2.0 0.48 22.0 3.09 42.0 3.31 62.0 3.40 82.0 3.44 2.5 0.53 22.5 3.10 42.5 3.32 62.5 3.40 82.5 3.44 3.0 0.58 23.0 3.11 43.0 3.32 63.0 3.40 83.0 3.44 3.5 0.63 23.5 3.12 43.5 3.32 63.5 3.40 83.5 3.44 4.0 0.69 24.0 3.13 44.0 3.33 64.0 3.40 84.0 3.44 4.5 0.76 24.5 3.13 44.5 3.33 64.5 3.40 84.5 3.45 5.0 0.86 25.0 3.14 45.0 3.33 65.0 3.41 85.0 3.45 5.5 0.97 25.5 3.15 45.5 3.33 65.5 3.41 85.5 3.45 6.0 1.09 26.0 3.16 46.0 3.34 66.0 3.41 86.0 3.45 6.5 1.22 26.5 3.16 46.5 3.34 66.5 3.41 86.5 3.45 7.0 1.36 27.0 3.17 47.0 3.34 67.0 3.41 87.0 3.45 7.5 1.50 27.5 3.18 47.5 3.34 67.5 3.41 87.5 3.45 8.0 1.64 28.0 3.18 48.0 3.35 68.0 3.41 88.0 3.45 8.5 1.78 28.5 3.19 48.5 3.35 68.5 3.41 88.5 3.45 9.0 1.91 29.0 3.20 49.0 3.35 69.0 3.42 89.0 3.45 9.5 2.03 29.5 3.20 49.5 3.35 69.5 3.42 89.5 3.45 10.0 2.15 30.0 3.21 50.0 3.36 70.0 3.42 90.0 3.45 10.5 2.25 30.5 3.22 50.5 3.36 70.5 3.42 90.5 3.45 11.0 2.35 31.0 3.22 51.0 3.36 71.0 3.42 91.0 3.45 11.5 2.44 31.5 3.23 51.5 3.36 71.5 3.42 91.5 3.45 12.0 2.52 32.0 3.23 52.0 3.36 72.0 3.42 92.0 3.46 12.5 2.59 32.5 3.24 52.5 3.37 72.5 3.42 92.5 3.46 13.0 2.66 33.0 3.24 53.0 3.37 73.0 3.42 93.0 3.46 13.5 2.71 33.5 3.25 53.5 3.37 73.5 3.43 93.5 3.46 14.0 2.76 34.0 3.25 54.0 3.37 74.0 3.43 94.0 3.46 14.5 2.81 34.5 3.26 54.5 3.37 74.5 3.43 94.5 3.46 15.0 2.85 35.0 3.26 55.0 3.38 75.0 3.43 95.0 3.46 15.5 2.88 35.5 3.27 55.5 3.38 75.5 3.43 95.5 3.46 16.0 2.91 36.0 3.27 56.0 3.38 76.0 3.43 96.0 3.46 16.5 2.94 36.5 3.27 56.5 3.38 76.5 3.43 96.5 3.46 17.0 2.96 37.0 3.28 57.0 3.38 77.0 3.43 97.0 3.46 17.5 2.98 37.5 3.28 57.5 3.38 77.5 3.43 97.5 3.46 18.0 3.00 38.0 3.29 58.0 3.39 78.0 3.43 98.0 3.46 18.5 3.01 38.5 3.29 58.5 3.39 78.5 3.44 98.5 3.46 19.0 3.03 39.0 3.29 59.0 3.39 79.0 3.44 99.0 3.46 19.5 3.04 39.5 3.30 59.5 3.39 79.5 3.44 99.5 3.46 20.0 3.05 40.0 3.30 60.0 3.39 80.0 3.44 100.0 3.47

Bulletin No. 2020–49 1457 November 30, 2020

Implementation of the CARES Act Extended January 1, 2021 Due Date for Contributions to Defined Benefit Plans

Purpose

This notice provides that the IRS will treat a contribution to a single-employer defined benefit pension plan with an extended due date of January 1, 2021 pursuant to § 3608(a)(1) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. No. 116-136, as timely if it is made no later than January 4, 2021 (which is the first business day after January 1, 2021).

Background

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 minimum required contribution determined under § 430 for 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)(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)).

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 mini

mum required contribution for a plan year. 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. 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.

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) is due on January 1, 2021. Notice 2020-61, 2020-35 I.R.B. 468, provides guidance regarding the extension of time for single-employer defined benefit plan contributions under § 3608(a)(1) of the CARES Act and related interest adjustments.

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 of the Code also apply for purposes of § 303 of ERISA.

Date for making contributions

The extension of the due date for contributions covered by § 3608(a)(1) of the CARES Act to January 1, 2021, is intended to allow employers sponsoring these plans to defer these payment obligations

until calendar year 2021. Deferring these payment obligations until calendar year 2021 helps employers to alleviate an additional adverse impact on their businesses that were already harmed by the COVID-19 pandemic. However, financial institutions cannot transfer funds on the January 1, 2021 due date. This effectively requires many employers to make these contributions prior to January 1, 2021, which would be inconsistent with the legislative intent to defer the payment obligation until calendar year 2021.

In order to achieve this deferral of the payment obligation until calendar year 2021 for all employers impacted by § 3608(a)(1) of the CARES Act, the IRS will treat a contribution with an extended due date of January 1, 2021 pursuant to § 3608(a)(1) of the CARES Act as timely if it is made no later than January 4, 2021 (which is the first business day after January 1, 2021). However, for a contribution that is made by January 4, 2021, and is treated as timely pursuant to this notice, the amount of the minimum required contribution that is satisfied by the contribution (and the amount that may be added to the plan’s prefunding balance on account of any excess contribution) is determined by computing the applicable interest adjustment using the actual contribution date. ¹

To conform the due date for relevant elections related to a plan’s funding balances to the treatment provided by this notice, 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 add to 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 4, 2021. ²

This notice does not affect the treatment of a contribution that is due on January 1, 2021, pursuant to § 3608(a)(1) of the CARES Act, but that is not made by January 4, 2021. Thus, the computations in Example 1(b) of Q&A-6 of Notice 2020-61 (which illustrate a situation in which required contributions due on Jan

1 See Notice 2020-61 for guidance regarding the contributions to which § 3608(a)(1) of the CARES Act applies and the interest adjustments pursuant to § 3608(a)(2).

2 Q&A-10 of Notice 2020-61 extended the due date for these elections to January 1, 2021.

November 30, 2020 1458 Bulletin No. 2020–49

uary 1, 2021, pursuant to § 3608(a)(1) of the CARES Act are made on February 15, 2021) are not affected by this notice.

Effect on other documents

Drafting information

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 call).

26 CFR 601.201: Rulings and determination letters. (Also: Part I, Sections 832, 846; 1.832-4, 1.846-1.)