This is an unprecedented time. We are here to answer your concerns about the effect of the coronavirus on your retirement plan.

On Friday March 27, 2020, the President signed the Coronavirus Aid, Relief and Economic Security Act (the CARES Act). The CARES Act addresses many provisions for business and health care relief including support for retirement plans.

In brief, plan distributions will be allowed for those employees that are affected by the coronavirus. Loan limits will increase and employees may request that loan repayments be delayed for up to one year. Lastly, Required Minimum Distributions (RMDs) are waived for 2020.

In more detail, the CARES Act includes the following provisions:

Plan Distribution Relief

Plans may allow in-service coronavirus distributions without regard to normal distribution restrictions. These distributions will be:

  • limited to $100,000
  • exempt from the 10% early withdrawal penalty
  • not be subject to the 20% mandatory tax withholding
  • eligible to be indirectly rolled over to an IRA or employer plan within 3 years from the date the distribution is taken
  • can be taxed over a 3 year period

These distributions are available to those who:

  • have been diagnosed with a coronavirus illness
  • have a spouse or dependent diagnosed
  • have experienced adverse financial consequences as a result of being quarantined, furloughed, laid off or had a reduction in work, loss of childcare or closure due to coronavirus

Plan Loan Relief

Generally, loans are limited to the lesser of $50,000 or 50% of a participant’s vested account balance. The CARES Act increases that limit to the lesser of $100,000 or 100% of a participant’s vested account balance. Loans must be made in the next 180 days. Loans taken in 2020 will have an additional year for repayment so that the normal five year repayment period is extended by one year.

In addition, upon the request of a participant, plan sponsors must suspend loan repayments due on existing loans that are in good order for a period up to one year. Interest will continue to accrue and repayment rates can be reamortized to reflect the interest and the later due date.

Required Minimum Distribution (RMD) Relief

Plans will not be required to make any RMD payments for 2020. If a 2020 RMD is distributed, it may be rolled over to an IRA or employer plan.

Plan Amendments

The distribution and loan relief are optional plan provisions. Generally, plan amendments to include these provisions are not required until 2022. Plan sponsors will need to decide whether to include these new provisions into their plan documents.