CARES Act Overview for Retirement Plans

CARES Act Overview for Retirement Plans

El 27 de marzo de 2020, el Presidente firmó la Ley de Ayuda, Alivio y Seguridad Económica por Coronavirus (Ley CARES). Entre las disposiciones incluidas se encuentran las aplicables a los planes de retiro. A continuación, presentamos un resumen de estas disposiciones para los planes de retiro.

Tax-Favored Withdrawals from Retirement Plans

  • The 10% early withdrawal penalty generally applicable to early plan distributions will not be applicable to any coronavirus-related distributions.
  • The maximum amount that may be treated as a coronavirus-related distribution for any taxable year is $100,000. This $100,000 maximum is applied on an aggregate basis across all plans maintained by the employer and any member of a controlled group.
  • The amount of the distribution will still be subject to federal income taxation; however, the amount subject to taxation for any applicable taxable year will be included in taxable income ratably over a 3-taxable-year period (for IRAs this period is a 2-year period) beginning with the applicable taxable year (unless the taxpayer elects otherwise). State income taxes may also be applicable.
  • At the time of distribution, the amount will not be treated as an eligible rollover distribution subject to the mandatory 20% withholding rules. The individual may elect withholding.
  • The amount of the distribution may be repaid at any time during a 3-year period beginning on the day after the date on which the distribution was received. The repayment may be made to any retirement plan or IRA eligible to receive a rollover contribution. As with similar provisions included under the SECURE Act, it is not exactly clear yet how this will be handled from a reporting standpoint.
  • A coronavirus-related distributions. is defined as any distribution from an eligible retirement plan or IRA made on or after January 1, 2020 and before December 31, 2020, to an individual (“Qualified Individual”):
    • Who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention, or whose spouse or dependent has been so diagnosed; or
    • An individual who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate).
    • Plan administrators may rely on the employee’s certification that the employee satisfies the requirements of these provisions.

IMPORTANT NOTE: With regard to the definition of individuals who qualify for special treatment under the CARES Act, it is important to note that individuals who have not had their normal work hours affected will not qualify for the special distribution or loan payment provisions included in the CARES Act. This is true even if such individuals are working from home or have had their rate of pay reduced (but not the hours they are expected to work).

Loans from Qualified Plans

  • For any loan made to a Qualified Individual during the 180-day period beginning on the date of enactment of the CARES Act, the maximum loan limit is increased to the lesser of: (1) $100,000 (as adjusted for previous outstanding loans); or (2) the greater of (a) 100% of the Qualified Individual's vested accrued benefit, or (b) $10,000. Previously, this limit was the lesser of: (1) $50,000 (as adjusted for previous outstanding loans); or (2) the greater of (a) 50% of the participant's vested accrued benefit, or (b) $10,000.
  • For Qualified Individuals (see above definition) with outstanding loans, any loan payments due during the period beginning on the date of enactment of the CARE Act through December 31, 2020 may be suspended for a 12-month period.
  • The 5-year maximum loan period is disregarded to accommodate this suspension period.
  • Subsequent repayments should be adjusted to include interest accruing during the delay period.

Temporary Waiver of Required Minimum Distribution Rules

  • The CARES Act permits a one-year delay in required minimum distributions ("RMDs") for qualified defined contribution plans, 403(b) plans, governmental 457 plans and IRAs. It does not include defined benefit plan RMDs.
  • The delay applies to 2019 RMDs that would normally need to be taken by April 1, 2020, and to 2020 RMDs.
  • Under the CARES Act, any RMD payments actually received in 2020 are considered to be eligible rollover distributions. As a result, any covered RMD payment that has already been made can be rolled back into the distributing plan, to another qualified plan eligible to receive a rollover, or to an IRA provided the rollover occurs within 60 days of receipt of the funds. In addition to the 60-day rules, RMDs paid from an IRA may only be rolled back into the IRA if there have been no other IRA-to-IRA rollovers within the last 12-month period.
  • These rules appear to be similar to the RMD suspension rules that applied in 2009. Under the 2009 rules, participants were permitted to elect to still receive their regular RMD payments. It is not completely clear that is the case with the CARES Act.

Plan Amendments

  • Plans are permitted to adopt these rules immediately provided the plan is retroactively amended on or before the last day of the first plan year beginning on or after January 1, 2022, or such other date as the Secretary of the Treasury may provide.
  • Governmental plans are allowed an additional two years in which to be amended.

Delay in Minimum Funding for Single-Employer Defined Benefit Plans

  • Minimum funding requirements (including quarterly contributions) for single-employer defined benefit plans are delayed until January 1, 2021.
  • The amount of each affected minimum funding contribution is required to be increased by interest accruing for the period between the original funding due date and the actual payment date. The rate of such accrued interest is based on the effective rate for the plan for the plan year in which the payment is made.