Impact of the CARES Act on Retirement Plans
April 2, 2020 - The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into immediate law by President Trump on March 27.
As part of the CARES Act, relief has been provided to participants in employee benefit plans. 

The following is a summary of key provisions affecting retirement plans; however, Plan Sponsors should work with their recordkeeper and/or ERISA attorney for proper implementation of the CARES Act:

NEW Coronavirus-related Distributions from Defined Contribution Plans
  • Distributions of up to $100,000 can be made to a “Qualified Individual”, defined as a participant:
  • Who is diagnosed with COVID-19 (or the virus causing it) by a CDC-approved test;
  • Whose spouse or dependent has received such diagnosis;
  • Who experiences adverse financial consequences because of COVID-19 (or the virus causing it) has resulted in the following:
  1. The participant’s quarantine, furlough/layoff, or reduction in work hours;
  2. The participant’s inability to work due to lack of child care; or
  3. The closing/reduction in hours of a business owned by the participant.
  • The participant is only required to certify he/she meets the definition of a Qualified Individual.
  • These distributions will not be subject to the 10% penalty on early distributions which would otherwise apply before reaching 59 ½.
  • These distributions will not be subject to the 20% withholding requirement generally applicable to pre-tax distributions from retirement plans.
  • Recipients of these distributions may repay some or all of the distribution within three years of receipt into any eligible retirement plan. Additional rules apply and are defined in the CARES Act.
  • Plan Sponsors are not required to allow the new Coronavirus-related distributions; however, if they choose to, Plan amendments to reflect these changes will be required by the last day of the first plan year beginning on or after January 1, 2022 (2024 for governmental plans), unless further delayed.

Temporary Maximum Participant Loan Amount increased to $100K/Delay in Loan Repayments for Qualified Individuals Affected by COVID-19
  • For new loans made between March 27, 2020 through September 21, 2020 (180 days after enactment), the maximum loan amount is the lesser of: 1) $100,000, or 2) 100% of the account balance in the plan, which is increased from the general limit of the lesser of: 1) $50,000, or 2) 50% of the account balance in the plan.
  • For outstanding loans as of March 27, 2020, as well as any new loans, the due date for all payments under that loan that would otherwise fall due between March 27, 2020 and December 31, 2020 will be extended for one year, even if that means the final payments would be made after the otherwise applicable maximum period for plan loans. Interest will continue to accrue.
  • Plan Sponsors are not required to allow the more relaxed provisions but if they choose to, they must formally amend by the last day of the plan year beginning on or after January 1, 2022 (2024 for governmental plans), unless further delayed.

Suspension of 2020 Required Minimum Distributions (“RMDs”)
  • RMDs from defined contribution and IRAs (but not defined benefit plans) for 2020 since the RMDs were calculated based on account values at December 31, 2019.
  • RMDs for these participants will be made in 2021 based on account values at December 31, 2020.
  • For individuals who reached age 70.5 during 2019 and did not receive their first RMD by January 1, 2020, they will not need to take their first RMD until by April 1, 2021, rather than April 1, 2020.
  • Note that the Secure Act made changes to RMDs as well, including defined benefit plans, as follows:
  • With respect to any participant who had not reached age 70.5 by December 31, 2019, delayed their required beginning RMD date from April 1 following the year in which they turn 70.5 until April 1 following the year in which they turn age 72; and
  • Required faster distribution of RMDs to non-spouse, non-child beneficiaries of participants who die after December 31, 2019.

Defined Benefit Plan Changes
  • Single employer defined benefit plan funding requirements for 2020, including quarterly contributions, may be deferred until January 1, 2021, including interest.
  • Plan Sponsors may elect to apply the plan’s 2019 funded status to determine the application of benefit restrictions in plan years containing the 2020 calendar year.
Whitley Penn Webinar

For a broader description of the CARES Act, please refer to the slides from the webinar on April 2, 2020 presented by Whitley Penn "Understanding the CARES Act and How It Affects Your Company".

Read more
www.whitleypenn.com
Whitley Penn is monitoring the developments related to the Coronavirus pandemic and will send out additional alerts in the future. In the interim, please contact your Whitley Penn Advisor if you have any questions or need any additional information.


Terry Cosand, CPA

Felix J. Lozano, III, CPA, CFE

Adam Rhodes, CPA