Retirement Plans Under The CARES Act

Late on Friday March 27, 2020, the President signed the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). Along with other business and health care relief, the CARES Act has provisions designed to provide relief for qualified retirement plan sponsors and participants. The CARES Act eases rules relating to plan distributions, repayment of loans and required minimum distributions.
Retirement Plan Distributions for Coronavirus Relief
Coronavirus distributions up to $100,000 from qualified plans, 403(b) plans, 457(b) plans and IRAs, are exempt from the 10% excise tax penalty that applies to early distributions from retirement plans.
To qualify as a coronavirus related distribution, it must be from an eligible retirement plan and be made between January 1, 2020 and December 31, 2020. The individual may self-certify that the distribution meets the following criteria:
  •  be to an individual who has been diagnosed with coronavirus;
  • be to an individual who has a spouse or dependent who has been diagnosed with coronavirus;
  • or, be to an individual who has been quarantined, furloughed, laid off, or had a reduction in work, loss of childcare or closure due to coronavirus.
The resulting income tax on the distribution can be spread over a 3-year period. In the alternative, distributions can be repaid by the individual within the 3-year period to the plan or IRA and retain certain tax deferred treatment, much like a rollover of a plan balance or IRA rollover.
Relief for Plan Loans
Loans from qualified retirement plans are generally limited to the lesser of $50,000 or one half of the participants vested account balance. The CARES Act provides that Plan loans can be increased to 100% of the Participants vested account balance up to $ 100,000. The loans must be made in the next 180 days.
Loans taken after the date of enactment through December 31, 2020, will have an additional year for repayment. The five-year repayment period is increased by one year.
Waiver of Required Minimum Distributions
As a general rule, individuals who attain age 70½ (72 under the SECURE Act) who have balances in tax qualified plans, 403(b) plans, 457(b) plans or IRAs must start receiving required minimum distributions. The CARES Act provides that individuals that attain those milestones in 2020 will not be required to receive those distributions in 2020. The RMD will be delayed by a year.
RMD’s due within 5 years of the date of death of a decedent will also be extended by one year.
Plan Operation and Plan Amendments
Retirement plan sponsors can opt to include the CARE Act provisions in their plans.  Plans are not required to be amended for the provisions until the last day of the Plan Year beginning on or after January 1, 2022 or two years later for government plans.  If the plan sponsor adopts the provisions, recordkeeping systems will need to be updated to track and report the distributions.
If you have any questions please contact any of our employee benefit attorneys. 

Frantz Ward has established a Coronavirus Response Team to assist clients in navigating the multitude of issues presented by the current crisis. For assistance in addressing these issues or in developing other strategies to protect your business, please contact Frantz Ward Partners Brian Kelly or Chris Koehler and they will engage the appropriate members of the response team. 

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