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Coronavirus Relief Package

The CARES Act and Implications for Retirement Plan Participants and Plan Sponsors

On March 27, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  The act contains important provisions to assist participants and plan sponsors affected by the Coronavirus.  A summary of important provisions is below:

Coronavirus Related Distributions

  • Allows distributions of up to $100,000 from 1/1/2020 – 12/31/2020 to qualified individuals from IRAs or qualified plans.
  • The 10% early withdrawal penalty for these distributions is waived and the normally required 20% federal income tax withholding from qualified plan withdrawals is not required.
  • Ability to spread the taxes on these withdrawals equally over a three-year period.
  • The distribution can be repaid to the plan within 3 years to be treated as a tax-free rollover.
  • Participants can self-certify eligibility for coronavirus-related distributions.

Expands Participant Loan Provisions

  • For 180 days starting from the CARES Act's enactment, participant loan limits to qualified individuals are increased to the lesser of (1) 100% of a participant's vested account balance or (2) $100,000.
  • Qualified individuals who had existing loans in qualified accounts prior to March 27, 2020 may delay loan repayments for up to one year.  Interest will continue to accrue.
  • Plans sponsors can choose to have a loan timeline extended by one year.

Qualified Individuals Definition

A Participant who:

  • has been diagnosed with COVID-19,
  • has a spouse or dependent(s) diagnosed with COVID-19, or
  • experiences adverse financial consequences due to the virus resulting from:
    • being quarantined, furloughed, or laid off,
    • having their work hours reduced,
    • being unable to work due to lack of child care, or
    • closing or reducing hours of a business the individual owns or operates.

Waiver of Required Minimum Distributions for 2020

  • The CARES Act waives RMD requirements for 2020 for IRAs and defined contribution plans.
  • Beneficiary RMDs also waived.

Modifies Plan Amendment Deadlines

  • Plan sponsors have the option of whether to offer the CARES Act provisions to their employees.
  • Plan sponsors can implement these provisions immediately even if they do not currently have loan or hardship provisions.
  • If the CARES Act provisions are adopted, the plan will need to be amended by December 31, 2022.