Senate Bill Expands Retirement Plan Access for Coronavirus Impact(s)


The CARES Act includes provisions advocated by the American Retirement Association that loosen retirement plan hardship and loan rules to free up funds for individuals impacted by the Coronavirus pandemic.

Life (and legislation) has been coming at us fast in March, as the country and Congress copes with the Coronavirus pandemic. Each week this month has seen a new and escalating policy response to the rapid spread of the virus, which has shut down major segments of our economic and social life for the foreseeable future. This latest (and largest) round of economic and health care stimulus is expected to come with a price tag of well over $1 trillion.

As a first step in this latest effort, Senate Majority Leader Mitch McConnell (R-KY), on behalf of the Senate Republican caucus, introduced the Coronavirus, Aid, Relief, and Economic Security (CARES) Act, which includes key provisions advocated by the American Retirement Association affecting hardship distributions and plan loans.

Hardship Distributions

The CARES Act waives the Code Section 72(t) additional 10% tax on early withdrawals up to $100,000 from a retirement plan or IRA for an individual who:

  1. is diagnosed with COVID-19;
  2. whose spouse or dependent is diagnosed with COVID-19;
  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 COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
  4. other factors as determined by the Treasury Secretary.

The CARES Act permits those individuals to pay tax on the income from the distribution ratably over a three-year period and allows individuals to repay that amount tax-free back into the plan over the next three years. Those repayments would not be subject to the retirement plan contribution limits.

Plan Loans 

The CARES Act doubles the current retirement plan loan limits to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan. Individuals with an outstanding loan from their plan with a repayment due from the date of enactment of the CARES Act through Dec. 31, 2020, can delay their loan repayment(s) for up to one year.

Plan Amendments

Retirement plans can adopt these rules immediately, even if the plan does not currently allow for hardship distributions or loans, provided the plan is amended on or before the last day of the first plan year beginning on or after Jan. 1, 2020, or later if prescribed by the Treasury Secretary.

Next Steps

The CARES Act represents the Senate Republicans’ opening negotiating position. Majority Leader McConnell is now expected to quickly enter into negotiations with his Democratic counterpart, Minority Leader Chuck Schumer (D-NY), to hammer out a bipartisan agreement on a package that can pass both chambers of Congress for President Trump’s signature.

Andrew Remo is the American Retirement Association’s Director of Legislative Affairs.


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