Retirement Plan Update: CARES Act Q&A
Does the CARES Act contain special rules that affect qualified retirement plans?
Yes, the CARES Act contained provisions that allows certain individuals to take a new type of “coronavirus-related distribution”, increases the limitation for plan loans from the plan for certain individuals and waives the 2020 Required Minimum Distributions. These new rules are discussed below.
Who is an eligible or qualified individual with respect to the special distribution and loan rules as provided in the CARES Act?
An eligible individual is an individual who: (1) is diagnosed with the COVID-19 virus, (2) has a spouse or dependent diagnosed with the COVID-19 virus, or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to the COVID-19 pandemic, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.
Are there special distribution rules if a distribution is in connection with COVID-19?
Yes, the CARES Act provides for a special “coronavirus-related distribution” to COVID-19 eligible individuals that waives the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after Jan. 1, 2020 through Dec. 31, 2020. In addition, income attributable to such distributions would be subject to tax over three years, and the participant may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. The “coronavirus-related distribution” is not subject to the 20% mandatory federal withholding. Employers may rely on an employee’s certification that the employee satisfies the conditions noted above.
Are there special loan limitations if the loan is to a COVID-19 qualified individual?
Yes, the CARES Act increases the loan limitation to qualified individuals, as defined above, for loans taken on or before Sept. 23, 2020 (180-day period beginning on March 27, 2020. Individuals who meet this definition have increased loan limits of 100% of the participant’s vested account balance or $100,000, whichever is less. If the participant is not a COVID-19 qualified individual, the normal loan limits discussed under the Other Common Questions 1, “Can a participant take a loan from the plan?” apply.
Are there special loan payment rules if a loan is to a COVID-19 qualified individual?
Yes, the CARES Act delays the loan payments for a COVID-19 qualified individual for any loan outstanding on or after March 27, 2020 through Dec. 31, 2020 for one year for any COVID-19 affected individual as defined above. Interest will continue to accrue on the loan. In determining the five-year period and the term of the loan, the period during which the payments are delayed shall be disregarded.
I’m over age 70 ½ and required to take Required Minimum Distributions (RMDs) from my retirement plan or IRA. Do I have to take my 2020 RMD?
The CARES Act waives the RMD rules for certain defined contribution plans, including 401(k) plans, 403(b) plans and IRAs for calendar year 2020. This provision provides relief to individuals who would otherwise be required to withdraw funds from such retirement accounts. The delay applies to any 2019 RMD due by April 1, 2020 and any 2020 RMD due by Dec. 31, 2020, including any RMD that could have been delayed until April 1, 2021. If you have already received your RMD, the 2020 distribution could be recontributed or rolled over to an IRA or other qualified plan if completed within 60 days of receiving the original distribution. It is expected that there may be relief coming as to an extension for timing of the repayment. More Guidance from the IRS is needed concerning the timing of repayment of RMDs already received.
If I want to implement any of the above changes provided for under the CARES Act, when do I need to amend my plan?
You may begin utilizing the changes provided under the CARES Act immediately. Your plan will need to be formally amended on or before the last day of the first plan year beginning on or after Jan. 1, 2022, unless the IRS delays further. This means if you maintain a calendar year plan, your plan will need to be amended on or before Dec. 31, 2022. Please notify your document provider if you want to implement any of these changes so that they can make sure your plan is amended appropriately.
For More COVID-19 Information
We know you’re concerned about the impacts of COVID-19 on your retirement plan and your employees, but CBIZ Retirement Plan Services is here to help guide you through these turbulent times. Please contact the CBIZ RPS Technical Resource Center with any questions or concerns you have.
CBIZ Retirement Plan Services is a trade name under which certain subsidiaries of CBIZ, Inc. (NYSE Listed: CBZ) market investment advisory, investment management, third party administration, actuarial and other retirement plan services. Investments, investment advisory and investment management services offered through CBIZ Financial Solutions, Inc., Member FINRA, SIPC and SEC Registered Investment Adviser, dba CBIZ Retirement Plan Advisory Services. Investment advisory and investment management services may also be offered through CBIZ Investment Advisory Services, LLC, SEC Registered Investment Adviser. Third party administration, actuarial and other consulting services offered through CBIZ Benefits & Insurance Services, Inc.