BY TED GODBOUT AND JOHN IEKEL – ASPPA
The American Retirement Association has been working with key lawmakers to include legislation that would provide tax relief to individuals and employers that suffer a sustained economic loss from the COVID-19 outbreak.
The relief would be patterned after the disaster relief that was provided in the Further Consolidated Appropriations Act, 2020 (which contained the SECURE Act) and the 2008 economic recovery legislation.
More specifically, the ARA has pressed for relief that would:
- waive the Section 72(t) additional 10% penalty tax on early withdrawals from retirement plans for individuals who have a principal residence in a declared health emergency area and suffered economic loss;
- permit individuals three years to repay distributions;
- increase retirement plan loan limits to the lesser of $100,000 or 100% of the participant’s vested account balance in a plan (doubling current loan limits);
- allow individuals unable to repay loans to pay the income tax associated with a loan default over three years rather than all in the year of default;
- allow individuals who borrowed from their plan and have a repayment due to delay their loan repayment for up to a year;
- provide a wage credit for employee retention for employers impacted by the virus outbreak;
- provide an automatic 60-day extension of tax-filing deadlines; and
- provide a temporary waiver for 2020 RMDs from DC plans and IRAs.
Considering the fast-changing health and economic situation concerning the COVID-19 outbreak, lawmakers appear set to consider a third, more expansive stimulus bill that includes retirement plan relief.
Treasury Secretary Steven Mnuchin, who worked closely with congressional leaders on a second bill that is nearing approval, reportedly is working on an $850 billion stimulus package to present to Congress.
This potential third bill is still in the discussion stage, with many ideas being floated from lawmakers in both the House and Senate and from both parties, including payroll tax relief, loan packages for small businesses and various other tax incentives for hard-hit industries. It may also include delay of tax deadlines and relief for student loan interest payments. A temporary cut in payroll taxes has, so far, been resisted by members from both parties but some type of relief seems to remain in the mix.
It’s possible that the provisions pursued by ARA could be added to a bill currently under development. The ARA, in a March 16 letter to the Treasury and Labor departments, has also requested relief from various retirement plan filing deadlines under the Internal Revenue Code and ERISA due to the impact of the Coronavirus.
Phase one of this three-part series of bills was the March 6 approval of an $8.3 billion research and vaccine development funding bill to combat the Coronavirus. A second, amended bill approved by the House on March 16 and moving toward approval in the Senate addresses some of the health and economic-related aspects, including reimbursements for COVID-19 testing, an expansion of FMLA and unemployment insurance, and new emergency paid sick leave for employers with fewer than 500 employees, as well as tax credits for such emergency paid sick leave.
Senate Majority Leader Mitch McConnell (R-KY) in a March 15 statement noted that the earlier legislation was only the beginning steps in providing relief and that he has spoken with the chairmen of the various senate committees about next steps, including:
- helping Americans overcome financial challenges in the weeks and months ahead;
- securing the nation’s economy, particularly for small businesses; and
- readying the health care system and supporting medical professionals.
In response to McConnell’s statement, Sen. Charles Grassley (R-IA), who is Chairman of the Senate Finance Committee, stated that, “We are actively working on a phase three economic stimulus package, which should include help for everyday Americans, as well as small businesses and major industries, so they can keep their doors open and workers on the job.”
“I’m currently looking at what we can do to relieve the strain on workers, the burdens on businesses small and large and the capacity deficits at rural hospitals,” Grassley noted, adding, “at this point, all options remain on the table.”
Of course, the timing of this third bill is uncertain, as many House and Senate offices remain closed over concerns about spreading the virus. Additionally, the Capitol complex itself is currently closed to visitors.
But the phones and email still work—and the ARA is pursuing all reasonable avenues to make this relief a reality.