THE CARES ACT: WHAT DO PLAN SPONSORS & ADVISORS NEED TO KNOW?
Signed into law by President Trump on March 27, 2020, the Coronavirus, Aid, Relief and Economic Security (CARES) Act was the second economic stimulus bill passed in the wake of the COVID-19 pandemic. The bill provides $2 trillion in direct financial assistance to Americans, eases access to loans and other economic assistance to businesses of all sizes and provides aid and support to healthcare providers.
KEY RETIREMENT PLAN DETAILS
What are the Amendment Requirements under the CARES Act?
- If you choose to allow coronavirus-related distributions and/or expanded coronavirus-related loan provisions, your Plan will need to be amended by the last day of the Plan Year that begins on or after January 1, 2022 (January 1, 2024 for governmental plans).
- You will need to document your Intent to Amend for either, or both, of these options prior to December 31, 2020. This can be accomplished by contacting your Client Relationship Manager to complete an Intent to Amend form specific to your plan provider.
- We will provide further information on the required amendment once additional guidance is issued.
Where can I find the CARES Act – Distribution Relief Overview?
What are Coronavirus-Related Distributions (CRDs)?
The CARES Act provides plan sponsors the option to add a new type of distribution for qualified individuals.
- Available before December 31, 2020, from all accounts under the plan.
- 10% premature distribution penalty tax does not apply.
- Subject to 10% federal withholding, rather than 20%, unless otherwise elected by the participant.
- Income taxes for the distribution can be spread over three years.
- Maximum amount available for a participant to withdraw is $100,000 from all plans maintained by the employer.
- If repaid within the three-year period following the distribution, the repayment is treated as a 60-day rollover and is not subject to taxation as a current distribution.
- Special rules apply to defined benefit and money purchase plans (participant must be at least age 59 ½ or terminated).
- The Plan Administrator may rely on a participant’s certification that he/she satisfies the conditions for receiving a coronavirus-related distribution.
What is the Defined Benefit Plan Relief?
- The CARES Act includes funding relief in the form of a delay in contribution deadlines for defined benefit and money purchase plans. Any contribution due in the 2020 calendar year now has a delayed due date of January 1, 2021. Interest will be due on the delayed contributions from the original due date to the actual payment date. Please contact your Client Relationship Manager for more information.
What are the Enhanced Plan Loan Provisions under the CARES Act?
The CARES Act provides plan sponsors the option to add coronavirus-related loan provisions for qualified individuals.
- Plan must currently allow for loans (or be amended to add loans no later than the end of the current Plan Year).
- IRS loan limit for a new loan taken between now and September 22, 2020, has increased to 100% of the vested account balance up to $100,000.
- Loan payments due between March 27, 2020, and December 31, 2020, may be delayed for up to one year without violating the 5-year maximum loan term.
- Interest continues to accrue.
- The Plan Administrator may rely on a participant’s certification that he/she satisfies the conditions for receiving a coronavirus-related loan.
According to the CARES Act, what is the Qualified Individual Definition?
- Participant, spouse or dependent diagnosed with SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug and Cosmetic Act)
- Participant, participant’s spouse or member of participant’s household experienced adverse financial consequences as a result of the following:
- Being quarantined, furloughed, laid off, or having work hours reduced
- Being unable to work due to lack of childcare
- Closing or reducing hours of a business that they own or operate
- Reduction in pay or self-employment income
- Having a job offer rescinded or start date for a job delayed
- Individuals meeting other factors as determined by the Secretary of the Treasury
What is the Waiver of Required Minimum Distributions for 2020 (RMDs)?
The CARES Act includes relief related to RMD payments from qualified Defined Contribution plans*. This includes RMD payments that normally would have been required in 2020 for the following:
- Participants who turned age 70 ½ prior to 2019 will not be required to receive their ongoing RMD for 2020.
- Participants who turned age 70 ½ in 2019 and did not receive their first RMD for 2019 on or before January 1, 2020 or their 2020 RMD.
- Beneficiary RMDs for beneficiaries receiving life expectancy payments.
- Beneficiaries who have an account balance that is subject to the five-year distribution rule may extend their required distribution by one year (full distribution of the account must be made by the 6th anniversary of the participant’s death).
*The CARES Act does not provide any relief for RMDs from Defined Benefit or Cash Balance Plans.
On June 23, 2020, the IRS issued additional guidance (IRS notice 2020-51), for participants who received a 2020 RMD who would have otherwise been waived under the CARES Act. The amount distributed as an RMD is now eligible for rollover into an eligible retirement plan by August 31, 2020, without regard to the normal 60-day limitation. Please note there are special limitations for RMDs taken from an IRA.
PLAN PROVIDER CHART
Election Forms can be returned to TRA at firstname.lastname@example.org
Election Forms can be returned to TRA at email@example.com
*Opt in: plan provider will allow CARES Act transaction requests AFTER receiving confirmation from plan sponsor
*Opt out: plan provider will allow CARES Act transaction requests unless they receive confirmation from the plan sponsor indicating that they do not want to allow these requests
OTHER KEY DETAILS
Changes to Health Savings Accounts (HSAs)
CARES Act Effect on HSAs – HealthSavings Administrators
Expanded Unemployment Benefits
CARES Act expands and extends jobless benefits – Godfrey & Kahn, S.C. Attorneys at Law
Student Loan Debt Relief
Higher Education & Student Debt – The Institute for College Access & Success
CARES Act Webinar : Building Resiliency for Retirement Plans
TRA Has the Help You Need
Whether you are a plan sponsor or advisor, your TRA Regional Sales Consultant (RSC) stands ready to help you successfully navigate the provisions of the CARES Act.
Your RSC will tap into TRA’s expertise so that you can get the answers you need from someone “in the know.” Please contact your RSC today or complete the form below!