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Retirement in the Time of COVID-19: Unpacking the Retirement Provisions Contained in the CARES Act

On Friday, the President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the largest stimulus package in American history. The CARES Act provides $2 trillion in relief to Americans and American businesses impacted by the coronavirus pandemic. Tucked within this behemoth stimulus package are several temporary retirement-related reforms designed to lessen the financial burden of Americans who participate in workplace retirement plans and IRAs.

These reforms include optional relief provisions:

  • The creation of a new in-service withdrawal option called a Coronavirus-Related Distribution (CRD),
  • Increased limits on qualified plan loans, and
  • Available loan suspensions for individuals impacted by the coronavirus pandemic. 

Plan sponsors who wish to make these options available to their employees will be required to amend their plans. The CARES Act provides for extended amendment deadlines for employers who choose to add these options. The CARES Act also allows for the suspension of RMD payments due in 2020.

SS&C has reviewed this legislation and we stand ready to bring product, process and thought leadership to market. As we all navigate these uncertain times, we are here to help our clients meet the needs of their plans’ sponsor clients and employees.  

We summarize the reforms in greater detail below.

Coronavirus-Related Distributions

Similar to disaster relief efforts of the recent past, the CARES Act allows for a new in-service withdrawal option called the CRD. This withdrawal provision is optional, therefore employers are not obligated to add it to their plan; however, if they do, an amendment will be necessary. A CRD is defined in the Act as any distribution from an “eligible retirement plan” (i.e., IRA, 401(k) plan, 403(a) and (b) plans, or governmental 457(b) plans and defined benefit plans) of no more than $100,000 made to an eligible participant between January 1, 2020 and December 31, 2020.

In order to be eligible for the CRD relief, plan participants must meet one of the following criteria:

  • 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,
  • Participant’s spouse or dependent is diagnosed with such virus or disease, or
  • 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.

The Act allows plan sponsors to rely on participant’s certification that they satisfy these conditions. CRD’s are exempt from the 10% early withdrawal penalty, are not subject to 402(f) Special Tax Notice Requirements, or mandatory 20% withholding requirements (although a CRD may be rolled over), are includable in the participant’s gross income ratably over a three-year period, and lastly may be repaid to the plan or IRA over a three-year period beginning on the day after the date the distribution is made. 

The $100,000 limit is a personal limit. Therefore, a plan will not be disqualified simply because a participant took CRDs from multiple retirement plans that, in the aggregate, exceeded this limit, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer) to the individual exceeds $100,000.

In the event that a plan sponsor chooses not to amend their plan to provide for this withdrawal option, a participant may take any other distribution or in-service withdrawal option that is available to them under the terms of their plan document, and would still be able to take advantage of the waiver of the 10% early withdrawal penalty and the ability to spread the inclusion of income tax over three years. These contributions would be treated as rollover contributions.

Loan Relief

The Act provides that plan sponsors may amend their plans to provide loans that are subject to increased maximum loan amounts or suspend loan repayments for current loans to eligible participants. To be eligible for the loan relief described in this section, a participant must meet the same eligibility criteria listed above for Corona-Related Distributions.

Under the terms of the Act, the maximum loan amount for an eligible participant is increased from $50,000 or 50% of the vested account balance to $100,000 or 100% of the vested account balance. This applies to plan loans taken out during the 180-day beginning on enactment (i.e., loans taken from March 27th, through September 23rd). In addition to these increased loan limits, the Act also allows plans to suspend loan repayments for a period of up to a maximum of one year for any eligible participant who has loan repayments due from the date of enactment through December 31, 2020. For purposes of the maximum loan period (five years traditionally), the suspension period is ignored. Therefore, loans that come off of suspension will need to be re-amortized to account for accrued interest over the remaining term, which may be extended due to the suspension.  

RMD Waiver

The Act provides that required minimum distributions (RMDs) for 2020 are waived for 401(k), 403(b), governmental 457(b) plans and IRAs. The Act does not appear to waive RMD requirements for defined benefit plans. This waiver also includes 2019 RMDs that are payable in 2020 (i.e., those individuals with a required beginning date of April 1, 2020, due to reaching age 70 ½ in 2019).  

Plan Amendment Relief

The Act allows plans to immediately adopt provided relief provisions and provides that plans have until the end of their 2022 plan year-end to adopt any necessary amendments. The Act provides governmental plans an additional two years to amend their plans for these changes.   

DOL Authority to Extend Deadlines

In addition to the provisions outlined above, the Act extends the authority of the Department of Labor to delay ERISA deadlines due to a Presidentially-declared disaster or a terroristic or military action, to include a public health emergency declared by the Secretary of Health and Human Services pursuant to section 319 of the Public Health Service Act.  

For more information about how SS&C Retirement Solutions can help you implement these new reforms and support your business, download our "Solutions across the retirement ecosystem" brochure.

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