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July 9, 2020

IRS Provides Guidance on Distribution and Contribution Provisions in CARES Act

The Internal Revenue Service (IRS) recently issued three notices that provided welcome guidance on provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law on March 27, 2020.

Distribution Expansion

The CARES Act created a new distribution event called a coronavirus-related distribution or CRD. Notice 2020-50, issued on June 19, 2020 provided enhancements to the list of situations that would allow participants experiencing negative financial consequences caused by the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively referred to as COVID-19) to access their retirement accounts.  In addition to the impact of a quarantine, furlough, lay off, lack of child care, closing of a business, or reduction in work hours due to COVID-19, the Notice adds to the list the impact of a reduction in pay (including self-employment income), rescinding of a job offer, or delay of a start date for a new job.

The Notice expands the definition of a qualified individual to include not only a participant impacted by the qualifying events, but also a participant whose spouse or other household member is financially impacted through a change in their employment, in the same situations as those listed above. A member of the participant’s household is someone who shares the participant’s principal residence. This expansion of the qualified individual definition also applies to the special increase in the participant loan limits that was introduced in the CARES Act.

Required Minimum Distribution Rollover Extension

Notice 2020-51 was released on June 23, 2020 and provided relief for participants subject to annual required distributions from retirement plans and IRAs. The CARES Act temporarily suspended this requirement for 2020 for all categories of individuals subject to this type of distribution. However, some participants had already received their 2020 distributions by the time the CARES Act became law in March.

A required minimum distribution is not eligible for rollover to another qualified plan or IRA; however the suspension of the requirement for 2020 meant that the individuals who had already received their distributions would have the option to roll over their 2020 distribution to avoid taxation and retain retirement savings. While IRS regulations already provide a 60-day rollover window, for some participants, the 60-day period had already expired before the CARES Act was even signed into law. Notice 2020-51 extended the rollover window to August 31, 2020, to allow those individuals whose rollover window had expired to have an opportunity to return the funds to their retirement accounts. Note that a 2020 required distribution from a qualified plan can be returned to the qualified plan from which it was distributed, or rolled over to an IRA. However, a 2020 required distribution from an IRA must be returned to the IRA from which it was received.

Safe Harbor Contribution Reduction or Suspension

Notice 2020-52 provides plan sponsors with a limited period in which to adopt an amendment to reduce or suspend safe harbor contributions regardless of whether they are operating at an economic loss for the plan year, or whether their previously distributed safe harbor notice provided for the mid-year reduction or suspension. This relief applies to amendments adopted between March 13, 2020 and August 31, 2020, although the amendment must be adopted no later than the effective date of the change.

An amendment to a safe harbor matching provision requires a supplemental notice to be distributed 30 days in advance of the effective date of the amendment since this type of change impacts the participant’s deferral decisions. While an amendment to a safe harbor nonelective provision still requires a supplemental notice, it is not required to be distributed in advance of the change, but must be distributed no later than August 31, 2020.

For More Information

The provisions in the CARES Act provide substantial relief in many areas, and the recent guidance clarifies several of the provisions. If you have questions about the updates, please contact the CBIZ RPS Technical Resource Center.


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. Investment advisory and investment management services offered through CBIZ Investment Advisory Services, LLC, SEC Registered Investment Adviser.  Investments, investment advisory and investment management services may also be offered through CBIZ Financial Solutions, Inc., Member FINRA, SIPC and SEC Registered Investment Adviser, dba CBIZ Retirement Plan Advisory Services.  Third party administration, actuarial and other consulting services offered through CBIZ Benefits & Insurance Services, Inc.

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