Late last week the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act has provisions that may be adopted by retirement plan sponsors that offer flexibility and financial relief to plan participants. Listed below are some of the provisions of the act:
Coronavirus-Related Retirement Plan Distributions – Certain plans including 401(a), 403(b), and IRAs are able to offer distributions of up to $100,000 for participants who:
• Have been diagnosed with COVID-19
• Have a spouse or dependent diagnosed with COVID-19
• Are experiencing adverse financial consequences due to furlough, layoff, reduced work hours, or the inability to work due to lack of childcare
These distributions are exempt from the additional 10% tax that usually applies to distributions prior to a participant attaining age 59 ½. These distributions can be contributed back to an eligible retirement plan within 3 years. If the distribution isn’t contributed back to an eligible retirement plan, the tax on the distributions can be spread over 3 tax years.
Plan Loans – Plans are permitted to do the following related to participant loans (Applies only to participants who meet the same qualifications listed above under Coronavirus-Related Distributions).
• Increase plan loan limits to the lesser of $100,000 or 100% of a participant’s vested balance. The increased loan limit starts on March 27, 2020 and is available for 180 days.
• Postpone payments on both new and existing plan loans that would have been due between March 27, 2020 and December 31, 2020 for up to one year. Loans may be re-amortized at the end of the period and may extend beyond the typical 5 year loan period pending further guidance.
Required Minimum Distribution (RMD) Waiver – RMD requirements do not apply for calendar year 2020 to certain retirement plans including 401(a), 403(b), 403(a), 457(b) and IRAs. This includes 2019 RMDs that weren’t required to be taken until April 1, 2020.
Please contact your Third Party Administrator before implementing any of the above provisions. If you have any questions on these provisions please contact Nicole Brown, CPA, CEBS, or Cole Hegstad in SDK’s Employee Benefits department.