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Information for Retirement Plan Sponsors from the CARES Act

Important Retirement Information for Plan Sponsors from the CARES Act  

UPDATED 6/29/2020


On Friday, March 27, 2020, Congress passed the CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY  ACT (CARES Act) in response to the COVID-19 pandemic. This bill is designed to provide financial relief for individuals and businesses. It also includes some key provisions that will immediately affect plan sponsors and participants of retirement plans. To help you navigate these provisions, we have compiled the most relevant information below. The IRS released Notice 2020-50 on June 19, 2020 to expand the definition of a Qualified Individual as noted below in red.

Hardship Distributions from Retirement Accounts

The CARES Act permits new “coronavirus-related” distributions up to $100,000 during the period January 1, 2020 to December 31, 2020. 

  • Applies to distributions from IRAs, Profit Sharing, 401(k), 401(a), governmental 457(b), and 403(b) plans
  • Distributions issued prior to age 59.5 are exempt from the 10% early withdrawal tax
  • Although federal income tax withholding is not required at the time of distribution, it does represent taxable income.  A person will be permitted to spread the income tax due over a three-year period
  • All or any part of the distribution can be repaid within three years of the date of distribution to any plan or IRA to which a rollover contribution can be made. Repayments will be treated as rollover contributions
  • A “coronavirus-related” distribution includes any distribution made between March 27, 2020 and December 31, 2020, to a “qualified individual” defined by any of the following:
    • A participant that has been diagnosed with the virus by a test approved by the CDC;
    • A participant’s spouse or dependent that has been diagnosed with the virus;
    • A participant that has experienced adverse financial conditions because:
      • The participant, the participant’s spouse or a member of the participant’s household was quarantined, furloughed or laid off, or had work hours reduced due to COVID-19;
      • The participant, the participant’s spouse or a member of the participant’s household was unable to work due to lack of childcare due to COVID-19;
      • A business operated by the participant, the participant’s spouse or a member of the participant’s household closed or reduced hours due to COVID-19;
      • The participant, the participant’s spouse or a member of the participant’s household had a reduction in pay (or self-employment income) due to COVID-19 or had a job offer rescinded or start date delayed due to COVID-19.
      • For this purpose, a “member of the household” is someone who shares the participant’s principal residence.  Presumably, this could include a significant other, roommate, other relative, or anyone else with whom the individual is sharing a home.
  • The plan sponsor (employer) can rely on the participant’s certification that the conditions to be considered a “qualified individual” have been satisfied 

Plan Loans

Retirement Plan loan limits can be increased for “qualified individuals” to the lesser of $100,000 or 100% of the participant’s vested account balance. The increase applies to loans taken up to 180 days after March 27, 2020.  In addition, for any loan payment due between March 27, 2020 and December 31, 2020, a “qualified individual” can elect to defer loan payments on any outstanding loan through December 31, 2020. The five-year repayment period can also be extended for one year (interest accrues on the loan during the delay period).     

Required Minimum Distributions (RMDs)

Any RMD for the calendar year 2020 is waived for defined contribution plans (Profit Sharing, 401(k), 403(b), 457(b)), IRA Plans, and IRAs. Per IRS Notice 2020-51, if a distribution is made in 2020 that would have been treated as an RMD, it can be rolled back to a qualified plan or IRA through August 31, 2020. 

Plan Amendments for CARES Act

Plan Sponsors may adopt these new rules immediately, even if the existing plan does not currently permit hardship distributions or loans. Plans will have to be amended on or before the last day of the first plan year beginning on or after January 1, 2022, or later if extended by the Treasury Secretary.  If you would like to review your plan and how we can adopt these new features, please contact your Plan Manager. 

Expansion of Department of Labor (DOL) Authority

The DOL has been granted authority to waive ERISA-imposed deadlines up to one year. This could potentially impact the timing of various participant notices and the Form 5500 filing deadline.  No changes have been announced at this time and we will update you if things change.   

Single-Employer DB Plan Funding Rules

The CARES Act also includes a provision to delay funding to a single-employer defined benefit plan.  Contributions due in 2020 can be delayed to January 1, 2021.  We recommend you consult with your defined benefit plan administrator and/or actuary for additional information.  

It is possible that Congress may consider additional actions and we will do our best to keep you informed.  Some of the items above will require further guidance from the IRS and Department of Labor to clarify administrative procedures. If you have any questions, please contact your Plan Manager and we will help identify how the CARES Act will affect your specific plan. 

Contact Information: 

Christopher Kelly, AIF®, QPFC, QKA, CEBS SVP, Retirement Services Manager
607-737-3717 [email protected] 
Lauren Zell, ERPA, CPC, QPA, CEBS AVP, Sr. Retirement Plan Manager
607-737-3725 [email protected] 
Michael Steffens, QKA Retirement Plan Manager
607-735-4017 [email protected] 
Sara Soprano, Associate Retirement Plan Manager
607-735-4034 [email protected] 

Nathan Gage, AIF®, QKA Retirement Plan Advisor
607-737-3826 [email protected]
The information contained in these materials is intended to be educational and believed to be accurate at the time of publication; however, it may be impacted by changes in the tax, legal, or regulatory environment.