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CARES Act Changes Rules Governing Retirement Plans

March 30, 2020

Among the many other provisions of the CARES Act are those impacting retirement plans (including 401(k)s, profit sharing plans, and IRAs) in order to provide an influx of cash to struggling employees.

Tax Favored Distributions
In calendar year 2020, an individual (including a self – employed individual) who is either diagnosed with SARS-CoV2 or COVID-19, has a family member diagnosed with SARS-CoV2 or COVID-19, or experiences adverse financial consequences due to quarantine, furlough, layoff, reduced work hours, or is unable to work due to lack of child care, may take a distribution of up to $100,000 in any taxable year. An employer may accept an employee’s certification that the request is due to one of these reasons.

Unless the employee chooses otherwise, the distribution will be included in his income ratably over three (3) years. Additionally, over a three (3) year period that begins on the day after the distribution occurs the employee may repay (in one or more payments) any amounts which they received as a distribution under this provision. These repayments shall not count against the contribution limits for the plan year.

Loans from Qualified Plans
Loans issued from qualified plans during the next six (6) months shall have their limits increased to the lesser of $100,000 or 100% of their vested account balance.

Current loans shall have repayments delayed with all interest accrued during the delay being forgiven and the five (5) year rule for loans being disregarded. Any payments due on or before December 31, 2020, shall be delayed for one (1) year. Any remaining payments shall have their due date adjusted as a result of the delay. 

Temporary Waiver of Required Minimum Distributions
For calendar year 2020, RMDs from 401(k)s, profit sharing plans, 403(b)s, 457(b) and IRAs shall be waived if the taxpayers required beginning date is in 2020 and the distribution was not made before January 1, 2020. 

Plan Amendments
Plan amendments that are required due to the implementation of these provisions must be made on or before the last day of the first plan year beginning on or after January 1, 2022.

For questions, or more information, please contact Priscilla A. Grant, BMD Business, Corporate and Tax Member at pag@bmdllc.com or 330.253.5934.

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