On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES” Act), a $2.2 Trillion stimulus package to assist workers in addressing financial needs during the crisis. Besides the most publicly highlighted provisions, along with suspending the employer share of payroll taxes, the package includes the following provisions impacting retirement plans. For employers, below is a summary of key aspects of the law that you should be thinking about.

DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS

The 10% federal tax penalty is waived for early distributions up to $100,000. Your retirement plan participants will be given the opportunity to repay amounts withdrawn or contribute the amount withdrawn, subject to the $100,000 limit, or as a trust-to-trust transfer to another plan within three (3) years of the distribution. Further, the taxable amount of the distribution may be included in income ratably over three years for federal tax purposes.

The requirements to take advantage of these special provisions for amounts distributed during the period from January 1, 2020 through December 30, 2020 include:

  • Distribution to an individual who is diagnosed with a disease designated as coronavirus by a test approved by the Centers for Disease Control and Prevention;
  • Distribution to an individual’s spouse or dependent who is diagnosed in the manner mentioned above;
  • Distribution to an individual that experiences financial consequences
    • from being quarantined, furloughed, laid off or having work hours reduced due to the coronavirus;
    • being unable to work due to lack of child care due to coronavirus;
    • being unable to work due to closing or business hours reductions of a business owned or operated by the individual;
    • other factors determined by the Secretary of the Treasury

Participants requesting these distributions may self-certify their qualification for distributions related to the above provisions to the Plan Administrator at your organization.

Hardship distribution provisions remain the same as under current regulations. If the participant resides in an area declared a Federal Disaster Area under IRS rules, qualification for hardships may be available. As of this communication, all states have been declared Federal Disaster Areas.

Required Minimum Distribution (RMD) rules are waived during 2020 for defined contribution plans such as 401(k)s, 403(b)s and Profit Sharing Plans.

LOAN PROVISIONS

Plan loan availability increases from $50,000 to $100,000 and the borrowing limitation increases from 50% to 100% of a participant’s vested account balance. This limit is effective from the enactment date of the Bill for a period of 180 days.

A one year delay in the due date for repayment of an outstanding loan of any qualified individual as discussed above may be permitted. This is effective from the date of enactment to December 31, 2020.

There are other rules affecting defined benefit plans that are not covered in this summary. As we receive further guidance about these implications for qualified defined contribution plans, we are committed to keeping you updated. In the meantime, should you have any questions regarding this information, please contact your Johnson Financial Group Retirement Plan Services Advisor or find one today.