March 29, 2020

CARES Act – Retirement and Financial Management Opportunities

The Coronavirus Aid, Relief and Economic Security (CARES) Act,(the Act) offers comprehensive relief to Atlanta businesses and individuals during this unprecedented emergency. It comes on the heels of the Families First Coronavirus Response Act, which solidified new and existing paid sick leave policies and created tax credits for impacted companies. However, this was simply not enough to manage the impact stay at home orders and forced closings have had on businesses. As a result, the Act was passed providing tax, retirement, financial management, payroll, expanded funding opportunities and more. In a prior blog post, we outlined the major tax opportunities created by the Act. In this post, we have provided a summary of the key retirement plan and financial management opportunities designed to help plan participants and sponsors.

Key Opportunities

• Plan Loan Limit Increase – To help those individuals impacted by the emergency, the Act temporarily increases the loan maximum to $100,000 that can be borrowed from a plan account. The increase is effective beginning on March 27, 2020, and will end 180 days later. It permits plan participants to borrow up to the greater of $100,000 or 100% of their account balance (previously set at $50,000 or 50%).
• Plan Loan Due Date Extensions – Any retirement plan loans taken between March 27, 2020, and December 31, 2020, is eligible to receive a one-year extension of repayment time. Remaining payments and interest can be re-amortized over the extended period.
• Required Minimum Distribution (RMD) Waiver – Qualifying plan participants are required to take an RMD in 2020 from plans based on account value at the end of 2019. However, these distributions would be taken from accounts with significantly reduced balances due to the current market turmoil. The Act allows defined contribution plans (including 401k and IRAs) to suspend the RMD requirement for 2020. It’s important to note this includes distributions required to be taken by April 1^st for those who turned 70 and ½ in 2019.
• Single-Employer Pension Contribution Delay – The Act permits minimum contributions required to be made to a defined pension plan during 2020 to be delayed until January 1, 2021. The interest accruing from the original required contribution to the extended payment date must be paid along with the missed contribution.
• Penalty-Free COVID Distributions – To help individuals directly impacted by the virus, the Act allows participants to receive a distribution of up to $100,000 from a qualified retirement plan. When taking the distribution, the 10% additional tax for premature distributions is waived if made during 2020. This change only applies to those diagnosed with COVID-19, when a spouse or dependent has been diagnosed or for individuals experiencing adverse conditions due to quarantine, being furloughed or a reduction in work hours.
• Repayment of COVID Distributions – The Act permits an individual who makes a COVID-19 related distribution to repay it within three years. The repayment will be treated as a rollover contribution to the plan.
• IRA Contribution Due Date– When the tax return and filing deadlines were extended to July 15. 2020, so was the due date for  2019 IRA Contributions. 
• Plan Amendment Timeline – Benefit plans sponsors will need to make an amendment to reflect these new rules by the last day of the plan year starting on or after January 1, 2022.

Impact on Plan Sponsors

The various changes outlined above will present some operational challenges for plan sponsors. The changes to RMD rules should be easy to implement because they are similar to the changes implemented during the 2008 financial crisis. The extension of loan dates could present the biggest issue because plan sponsors need to manage the administrative aspects of the change. This includes communication with participants, creation of new loan procedures and re-amortizations of loans due this year.

Contact Us

There are many important changes that plan sponsors need to consider and implement as outlined in the Act. For individuals, there are a variety of options available for accessing plan funds to help in this time of emergency. If you have questions about the information outlined above or need assistance with a plan management issue. Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to assisting you in these challenging times.