The impact of the CARES Act on retirement plans

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. The CARES Act includes the following provisions that impact retirement plans and provide relief to plan sponsors and plan participants.

Coronavirus-related distributions

• Participants may take “coronavirus-related distributions” from qualified retirement plans.
• A coronavirus-related distribution is exempt from the 10 percent penalty that otherwise applies to early distributions from qualified retirement plans.

• A “coronavirus-related distribution” is defined as a distribution taken by a participant:
  • Who is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention (CDC),
  • Whose spouse or dependent is diagnosed with COVID-19 by a CDC-approved test, or
  • Who experiences adverse financial consequences as a result of:
    • Being quarantined,
    • Being furloughed or laid off or having reduced work hours due to COVID-19,
    • Being unable to work due to lack of child care because of COVID-19,
    • Closing or reducing hours of a business owned or operated by the participant due to COVID-19, or
    • Experiencing other factors determined by the Secretary of the Treasury.
• Plan administrators may rely on a participant’s certification that he or she satisfies the conditions of a coronavirus-related distribution.
• A coronavirus-related distribution must be taken during the 2020 calendar year, cannot exceed $100,000 per participant, and may be repaid within three years after the date of the distribution. If the distribution is not repaid within three years, taxes on the unpaid amount of the distribution may be paid over a three-year period.

Plan loan relief for “qualified individuals”

• The $50,000 limit on a plan loan is increased to $100,000 for a “qualified individual” during the 180-day period following the enactment of the CARES Act.
• A “qualified individual” is a plan participant who meets the definition of a “coronavirus-related distribution,” which is described above.
• If the due date of a loan to a “qualified individual” occurs between the enactment of the CARES Act and Dec. 31, 2020, the due date is delayed for one year and repayments of the loan are adjusted to reflect the delayed due date and any interest accrued during the delay. The delay in the due date is disregarded for determining the five-year time limitation for plan loans.

Waiver of required minimum distribution rules

• The CARES Act waives required minimum distributions that are required to be made during the 2020 calendar year from defined contribution 401(a), 403(a), and 403(b) plans, governmental 457(b) plans, and IRAs.

Delayed funding requirements for defined benefit plans

• Minimum required contributions to single-employer defined benefit plans that are due in 2020 may be delayed until Jan. 1, 2021.
• The amount of any delayed minimum required contribution will be increased by the interest that accrued during the period the contribution was delayed.

Plan amendments to implement CARES Act changes

• Plans are not required to adopt plan amendments that implement CARES Act provisions until the last day of the first plan year that begins on or after Jan. 1, 2022.
• Governmental plans are not required to adopt plan amendments until the last day of the first plan year that begins on or after Jan. 1, 2024.