January 5, 2021
COVID-19 Relief Bill – Disaster Relief Retirement Plan Provisions
As the second wave of the COVID-19 pandemic intensifies many Atlanta businesses continue to be limited by government orders. This has left many unable to stay open or are doing so under drastically different conditions. The result has been a series of ongoing challenges that have left many businesses and individuals eagerly waiting for relief. It is against this backdrop that Congress and the White House passed another round of COVID-19 relief. The Consolidated Appropriations Act, 2021, (the Act) provides economic stimulus payments, expanded unemployment benefits, expanded tax savings for businesses, and changes to the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL). However, there were also changes to benefits available through retirement plans, similar to the CARES Act, to help those manage through disasters, such as the COVID-19. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
Disaster Relief Retirement Plan Provisions
- Partial Plan Termination Relief – When at least 20% of total plan participants are involuntarily terminated, a partial plan termination occurs, resulting in impacted participants becoming fully vested. The Act foregoes partial termination if the number of active participants covered by the plan on March 31, 2021, is at least 80% of the plan participants covered by the plan on March 13, 2020. Plans relying on this relief should maintain appropriate documentation.
- Qualified Disaster Distributions – Participants are now permitted to take qualified disaster distributions totaling $100,000 which includes any distributions taken in prior years. The 10% early withdrawal penalty to an employee under 59 ½ is waived and taxes are avoided when the distribution is repaid within three years. A qualified disaster distribution is any distribution from an eligible retirement plan, taken during the incident period and before June 25, 2021, where an individual’s principal place of residence (located within the disaster zone) experienced economic hardship.
- Disaster-Related Plan Loans – The Act permits qualified individuals to take plan loans up to $100,000 or 100% of the account value. In addition, loan repayment can be suspended for one year if repayment would normally be due during the period between the first day of the disaster and ending 180 days after the incident period. It is important to note that all interest on plan loans must accrue during the suspension.
- Money Purchase Plan Coronavirus Related Distributions (CRD)– Under changes made by the CARES Act, participants in qualifying retirement plans were permitted to take a CRD. Unfortunately, money purchase plans were not included in the list of plans. The Act remedies the issue by retroactively applying CRD rules to the plan type. Since the change came too late to implement, the benefit will be for those who accidentally allowed CRDs during 2020.
- Multi–Employer Plan Minimum Age for Distributions – The Act retroactively permits certain multi-employer pension plan participants in the construction industry to begin receiving benefits at 55, regardless of whether they are employed at the time distributions are made.
- Re-contribution of Prior Hardship Distributions – The Act also creates specialized re-contribution rules for those who took a hardship distribution to purchase/construct a residence in a disaster area but ended up using it for other expenses. The hardship distribution must have been received 180 days before and 30 days after the disaster incident. The repayment period ends 6 months after the Act’s enactment.
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The changes implemented through the Act is welcome news to those struggling to manage throughout the pandemic. It is important to note that plan sponsors are not required to offer these benefits, so it is necessary to check and determine what is available. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.
