As we all deal with the financial difficulties brought about by COVID-19, there are a few things that were addressed in the CARES Act to provide relief to employees and employers through their qualified retirement plans.
Coronavirus related distributions, up to $100,000, are allowed between January 1, 2020 and December 31, 2020 under the CARES Act. The distributions are exempt from the 10% early withdrawal penalty, can be repaid over three years, or would be included in taxable income over a three-year period to the extent not repaid. Participants are eligible for these distributions if they have been diagnosed or whose spouse or dependents have been diagnosed with COVID-19. Those quarantined, furloughed, laid off, working reduced hours or unable to work because of child care related to COVID-19 are also eligible. Participant certification that they meet one of these requirements satisfy plan administers fiduciary responsibility.
The CARES Act also provides two temporary changes to loan requirements for qualified individuals as noted above. Participants who meet the requirements specified above may (1) take loans up to $100,000 or 100% of their vested account balance, and (2) delay repayment of outstanding loans from the date of the CARES Act until December 31, 2020. Loan repayments made after this time must be adjusted to include interest accrued during the time the payments were being deferred.
Required minimum distributions are not required for the year 2020. Plans will have until the end of the plan year beginning on or after January 1, 2022 to adopt a retroactive amendment for these changes.
For defined benefit pension plan, the CARES Act provides additional time to meet single-employer plan funding obligations by delaying the due date for the minimum required contributions that would have been due during 2020 until January 1, 2021. The payment would be due with interest at that time, which accrued from the original due date until the date paid using the effective interest rate for the plan. This does not apply to any other payments that may be due besides the minimum required contribution. The act also provides plans the option to use their funded status for the last plan year ending before January 1, 2020 to determine funding-based limitations for the 2020 calendar year.
The CARES Act also allows the Labor Secretary to provide extensions of certain ERISA compliance deadlines in the event of “a public health emergency declared by the Secretary of Health and Human Services.” No such extensions have been determined to date, but may be announced in the coming weeks and months.