The IRS has provided guidance on a variety of retirement plan related topics recently.
On Friday, June 19, 2020, the IRS Issued Notice 2020-50 which provides additional guidance on Coronavirus Related Distributions and the CARES Act participant loan rules.
The CARES Act allows more expansive access to distributions and loans for those affected by the coronavirus. Participants who are qualified to take these distributions and loans initially, was limited to a participant who was diagnosed with the virus, a participant whose spouse or dependent was diagnosed with the virus, or a participant who suffered financial loss as a result of the pandemic due to being laid off, furloughed, quarantined, had reduced hours or needed to provide childcare because of the virus. With the Notice, the definition of qualified individuals has been expanded to include additional categories. Now, the definition also includes:
- A participant whose income is reduced or who has had a job offer rescinded or a job start date delayed due to the coronavirus
- A participant whose spouse or a member of their household was laid off, furloughed, quarantined, had reduced hours, cannot work due to childcare unavailability, had a job offer rescinded or a new job delayed due to the pandemic
- A participant with a business owned or operated by the participant’s spouse or member of their household that has closed or reduced hours
A member of the household is defined by someone who shares the participant’s residence.
The IRS has restated that employers can rely upon the employee to self-certify that they have been affected by the coronavirus illness. There is no duty to inquire further. The guidance applies to both coronavirus-related distributions and loans.
The notice also discusses the loan repayment structure. Initially, the IRS indicated that loan payments could be delayed for a full year. They have provided additional guidance that indicates that loan repayments must begin 1/1/2021. The loan itself can be re-amortized for an additional year beyond the normal limits, but the loan payments can only be deferred for the 2020 year.
On June 23, 2020, the IRS issued Notice 2020-51 that gave guidance on Required Minimum Distributions (RMD). The notice extends the time frame for RMDs to be treated as rollovers to August 31, 2020. Typically, participants who received a distribution from the plan have only 60 days to move the money into an IRA to avoid taxes. For those participants who took an RMD in 2020 prior to the passage of the CARES Act, this guidance allows them until August 31, 2020 to redeposit those funds to avoid taxation on the amount of the distribution.
We look forward to more guidance from the IRS on the CARES Act and other topics. We will continue to keep you informed.