CARES Act Related to Retirement Plans

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Below is a summary of the CARES Act as it relates to retirement plan provisions.

Tax-Favored Withdrawals

  • Tax -favored withdrawal, penalty-free, coronavirus-related distributions up to $100,000 between Jan. 1-Dec. 31, 2020 to the following qualified individuals
    • Individuals diagnosed with SARSCOV-2 or Coronavirus 2019 by a test approved by the Centers for Disease Control and Prevention
    • Individuals whose spouse or dependent, as defined by IRC 152) is so diagnosed, or
    • Individuals who experience adverse financial consequences as a result of being quarantined, furloughed or laid off or having to work hours reduced due to COVID-19, being unable to work due to lack of child care due to COVID-19, closing or reduced hours of a business owned or operated by the individual due to COVID-19, or other factors as may be determined by Treasury.

**Employers will be permitted to rely on an employee’s certification that he or she satisfies the above conditions in determining whether a distribution is coronavirus-related.

  • Repayment of coronavirus-related distributions permitted in one or more payments within three years of taking the distribution.
  • Coronavirus-related distributions may be included in individuals’ taxable income ratably over a three-year period, unless the distribute elects otherwise.
  • These distributions are not eligible for direct rollover.
  • The mandatory 20% withholding will not apply.

RMD Changes

  • Required Minimum Distributions (RMDs) may be waived in 2020 (including inherited IRAs and those who had not yet received their first distribution if they turned 70 ½ in 2019).

Loan changes

  • Plan loan dollar limits will be temporarily increased to the lesser of $100,000 or 100% of the participant’s vested balance for loans to qualified individuals defined above (this applies to loans taken within 180 days of the enactment).**
  • Qualified Individuals with an outstanding loan balance with a repayment due date between the date the CARES Act is enacted and the last day of 2020 could have such due dates delayed for one-year with subsequent payments adjusted to take into account the delay. Loan durations (including the 5-year maximum) may also be disregarded during this period, if payments are delayed.

Plan changes

  • Plan amendments for coronavirus-related distributions, RMD waivers, and increased loan limits would be required by the last day of the plan year beginning on or after Jan. 1, 2022 (with an additional two years for government plans).  Plans will be permitted to operate in accordance with these changes before the amendments are formally adopted, and then be retro-actively amended.

Defined benefit changes

  • Single-employer pension plan funding relief by delaying minimum required contributions due during 2020 until Jan. 1, 2021. Note however, that the amount of the payment to later be made would be increased by interest which accrued from the original due date until the new payment date. Plan sponsors may elect to treat the plan’s funding percentage (AFTAP or adjusted funding target attainment percentage) for the last plan year ending before Jan. 1, 2020 as the AFTAP percentage for plan years which include the 2020 calendar year when determining whether restrictions on certain amendments and lump sums (or certain other accelerated payment forms) under IRC 436 apply for such plan years.
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