The CARES Act and Retirement Plans
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which, among other things, provides for the following:
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Special Rules for Use of Retirement Funds:
- Tax-favored Withdrawals from Retirement Plans. Section 2202 of the CARES Act provides that a plan participant may take a “coronavirus-related distribution” under his or her employer’s retirement plan, in an amount not to exceed $100,000, without being subject to the ten percent (10%) early withdrawal penalty under Internal Revenue Code §72(t). For purposes of this Section, a “coronavirus-related distribution” means a distribution that is made on or after January 1, 2020, and before December 31, 2020, to an individual (1) who is diagnosed with COVID-19; (2) whose spouse or dependent is diagnosed with COVID-19; or (3) who experiences adverse financial consequences as a result of being quarantined, being furloughed, laid off, had hours reduced due to COVID-19, is unable to work due to lack of child care due to COVID-19, had to close or reduce business hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Secretary of Treasury. An employer may rely on an employee’s certification that he or she satisfies this criteria.
After receiving the coronavirus-related distribution, a participant may, at anytime for 3 years following the date of the distribution, repay the distribution by making 1 or more contributions, not to exceed the distribution amount, to an eligible retirement plan. If the amount is repaid within this timeframe, it will be treated as though it was an eligible rollover distribution and will not be included in the participant’s gross income. Otherwise, the distribution amount may be included in the participant’s gross income ratably over the 3-taxable-year period. - Increase in Loan Limits. For the period beginning on March 27, 2020 through September 24, 2020, the limit on the maximum loan that may be taken from a qualified employer plan is increased to the lesser of $100,000 or 100% of the present value of the nonforfeitable accrued benefit of the employee under the plan.
- Delay in Loan Repayments. For any “qualified individual” who has an outstanding loan on or after March 27, 2020 and through December 31, 2020, the due date for any payments owed under the loan shall be delayed for 1 year. However, interest will continue to accrue.
For purposes of this Section, a “qualified individual” means an individual (1) who is diagnosed with COVID-19; (2) whose spouse or dependent is diagnosed with COVID-19; or (3) who experiences adverse financial consequences as a result of being quarantined, being furloughed, laid off, had hours reduced due to COVID-19, is unable to work due to lack of child care due to COVID-19, had to close or reduce business hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Secretary of Treasury.
- Tax-favored Withdrawals from Retirement Plans. Section 2202 of the CARES Act provides that a plan participant may take a “coronavirus-related distribution” under his or her employer’s retirement plan, in an amount not to exceed $100,000, without being subject to the ten percent (10%) early withdrawal penalty under Internal Revenue Code §72(t). For purposes of this Section, a “coronavirus-related distribution” means a distribution that is made on or after January 1, 2020, and before December 31, 2020, to an individual (1) who is diagnosed with COVID-19; (2) whose spouse or dependent is diagnosed with COVID-19; or (3) who experiences adverse financial consequences as a result of being quarantined, being furloughed, laid off, had hours reduced due to COVID-19, is unable to work due to lack of child care due to COVID-19, had to close or reduce business hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Secretary of Treasury. An employer may rely on an employee’s certification that he or she satisfies this criteria.
- Temporary Waiver of Required Minimum Distributions. Section 2203 provides for a temporary waiver of minimum required distributions (“RMDs”) under Internal Revenue Code §401(a)(9) for calendar year 2020 for (1) defined contribution plans, including Section 403(b) plans, (2) 457(b) plans, and (3) individual retirement plans.
If an employer wishes to make any of these provisions available to its plan participants, the amendment must be made on or before the last day of the first plan year beginning on or after January 1, 2020. If you have any questions or concerns, please contact a member of the Koley Jessen Employment Practice Group.
* The information contained in this document is provided for informational purposes only. It should not be construed as business, legal, accounting, tax, financial, investment or other advice on any matter and should not be relied upon for such.
The information in this document may not reflect the most current developments as the subject matter is extremely fluid and may change daily. The content and interpretation of the issues addressed herein is subject to revision. Koley Jessen, P.C., L.L.O. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this document to the fullest extent permitted by law. Do not act or refrain from acting upon the information contained in this document without seeking professional or other advice.