COVID-19 Resources

How the CARES Act Impacts Retirement Plans

Written by Kyle Bonds, ERPA, QPA, QKA on April 7, 2020

Warren Averett CARES Act Retirement Plans Image

On March 27, 2020 President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

In addition to the much-publicized incentives to individuals and businesses, there are a number of provisions that affect retirement plans. These changes are optional and are not required to be adopted.

Plan Distributions

The CARES Act allows for coronavirus-related hardship distributions of up to $100,000.

These distributions are not subject to 10% excise tax, and mandatory 20% withholding tax on these distributions would not apply.  A plan can rely on participants’ certification of their eligibility for distribution.

Who Qualifies: Participants (including spouses and dependents) who are diagnosed with COVID-19, who experience adverse financial circumstances as a result of being quarantined, laid off, furloughed, who suffer reduced working hours or who are unable to work because of the lack of childcare will qualify.

Benefits: Amounts distributed can later be repaid to a qualified plan or an IRA, provided it is an account to which a rollover contribution could be made. The repayment of distribution can be made at any time over a three-year period from the date the distribution is received.  The distribution can be spread out for tax purposes ratably over the three taxable years beginning with the taxable year of the distribution to the extent that the distribution is not repaid.

Plan Loans

The Act increases the maximum dollar amount available for loans from qualified plans from $50,000 to $100,000 and increases the maximum percentage from 50% to 100% of the participants’ vested account balances.

Who Qualifies: Participants (including spouses and dependents) who are diagnosed with COVID-19, who experience adverse financial circumstances as a result of being quarantined, laid off, furloughed, who suffer reduced working hours or who are unable to work because of the lack of childcare will qualify.

Benefits: The due date for any plan loan with a current due date beginning on the date of the enactment (March 28, 2020) and ending on December 31, 2020 will be extended for one year, or if later, until the date that is 180 days after the date of the Act’s enactment. The five-year limit on plan loan payments is disregarded.

Additional Items

  • Required Minimum Distributions (RMDs) for 2020 are delayed one year, for all plans except defined benefit plans. RMDs made prior to the enactment of the CARES Act are eligible to be rolled over and it might be possible to roll that money back into the plan.
  • Minimum funding for plans may be delayed until January 1, 2021. Interest will continue to accrue.
  • The Department of Labor is allowed to postpone certain filing deadlines for up to one year.

Plans electing to allow the provisions will need to be amended to reflect these new rules by the last day of the plan year beginning on or after January 1, 2022.  For calendar year plans, this is December 31, 2022.

These are the details as we know them today, we will continue to monitor and communicate any changes.

This article reflects our views at the time this article was written and should be used as reference only. We recommend that you talk to your Warren Averett advisor, or another business advisor, for the most current information or for guidance specific to your organization.

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