COVID-19: CARES Act and Retirement Relief
The Coronavirus, Aid, Relief, and Economic Security (CARES) Act provides relief to those affected by the pandemic. This blog post will focus on the provisions solely affecting retirement plans.
Hardship Distributions: The Act allows individuals affected by the virus to take early withdrawals of up to $100,000 from their retirement plans or IRAs, without incurring the normal 10% penalty for such withdrawals.
The new Act also allows those individuals to pay income tax on the early withdrawal ratably over a three year period. Alternatively, the withdrawn amount could be paid back to the plan over the following three years and no income tax would be incurred. The repayments would also not be subject to the contribution limits of the retirement plan.
Individuals who are eligible for these distributions include:
- Those whose spouse or dependent is diagnosed with COVID-19;
- Those who experience adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
- other factors as determined by the Treasury Secretary.
Plan Loans: The current retirement plan limits on loans would double to allow loans up to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan. Those with outstanding loans with repayment due between now and December 31, 2020, can delay their loan repayments for up to one year.
Plan Amendments: Employers and plan administrators can have the new CARES rules apply immediately, even if their current plan does not allow for hardship distributions or loans, as long as they amend their plans on or before the last day of the first year of the plan year beginning on or after January 1, 2020 (or later if prescribed by the Treasury Secretary).
Temporary Waiver of Required Minimum Distribution Rules: Required Minimum Distributions (RMDs) currently start when a participant attains age 72. RMDs are waived for the calendar year 2020 for defined contribution plans, including 401(k), 403(b), 457(b) and IRAs.
Single-employer Defined Benefit Plan Funding Rules: The Act will also give single employer defined benefit plans more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021. At that time, any contributions due earlier would be due with interest. Additionally, a plan’s status for benefit restrictions as of December 31, 2019 will apply through 2020. This allows a plan sponsor to elect to treat the plan’s funding target attainment percentage for the plan year that ends before January 1, 2020 as the funding target attainment percentage for the following plan year.
Expansion of DOL Authority to Postpone Certain Deadlines: The Department of Labor (DOL) has expanded authority in times of terroristic or military action. The Act also gives DOL expanded authority in times of public health emergencies declared by the Secretary of Health and Human Services under the Public Health Service Act.
Helsell Fetterman LLP remains committed to keeping you informed of legal changes that may affect you during this pandemic. If you have any questions, please don’t hesitate to contact any of our attorneys.