COVID-19 and CARES Act

Certainly this a very trying time for all of us as we fight the COVID-19 outbreak.  In addition to the human suffering among those directly affected by the virus, the entire economy that was thriving no more than just a few weeks ago has been hit by a sledgehammer.   Thankfully, our federal government has been taking some steps to help lessen the burden.  The purpose of this e-mail is to update our partners and clients on the Coronavirus Aid, Relief and Economic Security (CARES) Act.   Attached is a very comprehensive set of FAQ’s regarding the Cares Act pension plan provisions prepared by the American Retirement Association in partnership with the American Society of Pension Professionals and Actuaries.  Below is our highlights of the law focusing on the provisions that we feel our clients are most interested in.

The first question many are asking is whether I qualify for some of the relief available through CARES.   It is important to note that not everyone can assume they may take advantage of the relaxed rules.  Other than the relaxed rules on Required Minimum Distributions, you must be a “qualified individual.”  A qualifying individual is either a participant or family member diagnosed with Covid-19 OR a participant adversely affected financially due to quarantine, furlough, lay-off, hours reduced, unable to work due to childcare or business closing.  If your company has employees, the employee will need to certify that he or she meets the qualification requirements.

Coronavirus-Related Distributions

If you are a qualified individual, the CARES Act offers Coronavirus-Related Distributions between January 1, 2020 through December 31, 2020:  

• In-service withdrawals are permitted at any age regardless of money type (e.g., 401(k), safe harbor)
• 10% excise tax penalty applicable to withdrawals prior to age 59 ½ is waived
• The 20% mandatory withholding is waived and replaced with a 10% withholding default unless elected out of withholding
• Taxation of withdrawals may be spread ratably over 3 years
• Participants can reimburse their accounts within 3 years to avoid taxation
• The total amount of Coronavirus-Related Distributions may not exceed $100,000

Coronavirus-Related Loans

If you are a qualified individual, the CARES Act offers Coronavirus-Related Loans between March 27, 2020 through December 31, 2020:

• The previous maximum loan of 50% of a participant’s account balance is raised to 100%.
• Maximum dollar amount of a loan is raised to $100,000
• Loan repayments due between March 27, 2020 and December 31, 2020 may be delayed one 1 year and extends the maximum 5 year period.

Required minimum Distributions

Regardless of whether you are a qualified individual, the CARES Act waives Required Minimum Distributions for 2020 including “first year” Required Minimums due April 1, 2020.

Coronavirus-Related distributions, loans and Required Minimums are optional for any Plan and will eventually require Plan amendment to support the elected relaxed provisions.  The expected deadline at the present time for the amendment is the end of the 2022 Plan Year.  We encourage all of our clients to adopt the 401kinabox annual plan maintenance fee that gives the Plan sponsor the peace of mind knowing all required interim good faith amendments and restatements are included in the annual fee rather than dealing with surprise amendment fees forced on sponsors by the IRS and law changes.

If you have any questions regarding the CARES Act, please do not hesitate to call us at 844-602-4015 or use our Chat line at www.401kinabox.net.  All of us here at 401kinabox hope you have a pleasant Easter.