In response to the COVID-19 pandemic, Congress passed the CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY ACT (CARES Act) to help mitigate the impact on businesses, workers, and consumers.  The CARES Act has provisions allowing access to retirement savings and suspension of required minimum distributions. While the government will be providing further guidance in the coming weeks, below is an initial summary of some of the key provisions that could affect your retirement plans.

Employer-sponsored retirement plans are not required to implement the distribution or loan provisions of the CARES Act.  Plan sponsors are encouraged to contact their relationship manager to discuss how the CARES Act might impact their plan. In the meantime, we are preparing for the new provisions and will provide additional communication when we are ready and able to offer the new loan and distribution options.

Plan sponsors may rely exclusively on an employee’s certification that the employee satisfies one of the following conditions to determine eligibility for a distribution. Trust Point will require the participant to sign a certification form as a part of their withdrawal request.

The CARES Act provides special provisions for those impacted by coronavirus. ‘Qualifying individuals’ are defined as an individual:

  • Who is diagnosed with COVID-19 by a test approved by the CDC
  • Whose spouse or dependent is diagnosed with such virus, or
  • Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced due to such virus, being unable to work due to lack of child care due to such virus, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of Treasury.

Distributions Related to Coronavirus

  • Individuals financially impacted by the coronavirus are eligible for distributions in 2020 of up to $100,000 from a qualified retirement plans (including 401k, 457, 403b, or IRA) without incurring a 10% early withdrawal penalty (if under 59 ½).
  • The income tax on the distributions may be spread evenly over 3 years.
  • Taxes can be avoided entirely if the distribution is repaid to any plan or IRA that accepts rollovers within a 3-year period.
  • Distributions related to the virus are not eligible rollover distributions.  Therefore, the typical 20% federal income tax withholding requirement will not apply.

Expansion of Plan Loans

  • A qualified loan is any new or pre-existing loan to a person who would be eligible to receive a coronavirus related distribution, as defined above.
  • For new loans, the maximum loan amount is increased from $50,000 or 50% of the vested account balance to $100,000 or 100% of the vested balance. This increase applies to loans taken from March 27, 2020 through September 25, 2020.
  • For any person who has an outstanding loan balance on or after March 27th, 2020, and loan payments due before December 31, 2020, payments may be delayed by one year. At the end of the one-year suspension, the loan balance and accrued interest must be re-amortized. The person may disregard the five- year loan limit for this purpose.
  • All subsequent payments will be adjusted to take into account the delay and the interest accrued during the delay. The five-year loan limit may be disregarded for this purpose.

Temporary Waiver of Required Minimum Distributions (RMDs)

  • Waiver of any RMDs for calendar year 2020 from a qualified retirement plan.
  • If a distribution is made in 2020 that would have been treated as an RMD but for the 2020 waiver, it can be rolled over in accordance with the 60 day rollover rules.