The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contains many provisions to help businesses and non-profits survive the economic impact of Covid-19. This blog post highlights some of the important defined contribution provisions contained in the law.
403(b) Plan Adoption Deadlines Extended
The IRS has provided employers with 403(b) plans with a three month extension to adopt necessary amendments or restatements to their plans. The deadline is now June 30, 2020.
401(k) and Other Defined Contribution Early Withdrawals
Distributions for Coronavirus related distributions will not be subject to the 10% penalty that normally applies to early withdrawals. In addition, individuals may elect to include the amount of the qualified distribution in income over a three year period.
There are a number of conditions that must be met in order to qualify for this relief:
· Timing of Distributions and Amount: Coronavirus related distributions may be taken no earlier than January 1, 2020, but before December 31, 2020.Total Coronavirus distributions may not exceed $100,000, and may not be rolled over.
Eligibility for Distributions:Coronavirus distributions must be made to an individual who is diagnosed with the SARS-CoV-2 virus or with coronavirus disease 2019 (COVID-19), or to an individual whose spouse or dependent is diagnosed with the virus or disease. Alternatively, an individual is eligible for this relief if he or she experiences adverse financial consequences stemming from the virus or disease as a result of being quarantined, furloughed, laid off, having reduced work hours, being unable to work due to lack of child care, the closing orreduction of hours of a business owned or operated by the individual or other factors determined by Treasury.
Plan Loans – Increase in Limit and Extension of Period to Repay
Certain “qualified individuals” (defined below) may now borrow more money from their defined contribution retirement plans, and have additional time to repay new or existing plan loans.
· New Loans: First, for a qualified individual, the limit on plan loans is increased to the lesser of $100,000, or 100% of the participant’s vested account balance, instead of the $50,000 and 50% vested account balance limits that normally apply under law. This would apply for loans made from March 27, 2020 to September 27, 2020 (the 180-day period beginning on the date of the Act’s enactment).
· New and Existing Loans: The Act also provides some relief for existing loans, delaying repayments for plan loans outstanding on or after March 27, 2020 (date of enactment) by one year, provided the payment is otherwise due on or before December 31, 2020.
Minimum Required Distributions (MRD) – Waiver for 2020
· 2020 RMD Waiver. The Act waives any RMD required to be made in 2020, provided it was not made before 2020, from defined contribution plans (including 401(k) plans, profit sharing plans, IRAs, 403(b) plans and certain 457(b) plans). The 2020 RMD Waiver does not extend to defined benefit plans.
· Rollover of Payment. Under the Act, a participant who receives a payment in 2020 that otherwise would have been an RMD for 2020, may be able to roll the distribution over to an eligible retirement plan. If a participant does not rollover such a distribution, however, the mandatory 20% income tax withholding that would otherwise apply to an eligible rollover distribution is not applicable.
Plan Amendment Deadlines
Plan sponsors have at least until the last day of the first plan year beginning on or after January 1, 2022 (i.e., December 31, 2022 for calendar year plans) to amend their plans to provide for the coronavirus distribution, plan loan and 2020 RMD Waiver relief.
Employers should contact their plan sponsor to amend their plans accordingly.
Artemiste is committed to helping our clients navigate through these ever-changing HR challenges. We will continue to publish updates as they become available and are here to answer any questions during the crisis and beyond.
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Aisling Byrne, SHRM-SCP, CEBS, CMS, CPLPis the CHRO and CTLD at Artemiste where creating great places to work is our passion. Ms. Byrne is a frequent contributor to the Artemiste blog on many topics including onboarding, talent development, performance management, compensation planning, employee engagement, total rewards and learning and development.
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