The CARES (Coronavirus Aid, Relief, and Economic Security) Act was signed into law on March 27, 2020. It makes three major changes to retirement plans.

The loan and distribution provisions are optional and do not have to be adopted by the Plan Sponsor. Some recordkeepers have decided to allow plans to opt in the new regulations, while other recordkeepers have decided to automatically opt all plans into the new regulations. You should understand which route your recordkeeper has taken.

The expanded loan and distribution provisions are only available to individuals who qualify. To qualify, the participants must have met one of the following conditions:

  • Be diagnosed with the coronavirus
  • Have a spouse or dependent diagnosed with the coronavirus
  • Have an adverse financial consequence due to quarantine, furlough, layoffs, reduce hours, or be unable to work due to lack of child care

The Act allows qualifying participants to withdraw up to $100,000 from a retirement plan without the 10% early withdrawal penalty even if they aren’t yet 59½ years old. Participants will be allowed to pay the ordinary income taxes on the distribution over a three year period. Participants also have the ability to pay back the distribution within three years and avoid taxation on the distribution. These distributions are available for the rest of 2020.

The Act also allows an increase to the loan limit for qualifying participants, raising it to the lesser of $100,000 or 100% of the vested account balance. These loans are available through September 23, 2020. The Act also allows participants to suspend loan repayments for up to a year, extending the normal repayment period from five years to six years. We’re still seeking guidance on how loan repayments will begin after the suspension. We will keep you up to date.

Required Minimum Distributions (RMDs) for all participants are suspended for 2020. We will still be calculating RMDs for participants who qualify and allowing the participants to decide if they’d like to waive their RMD for 2020.

There is a lot of information contained in the Act and some finer points of the provisions are still unknown. We will be here to guide you through the many requirements and features of this new law.