On Friday March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act is a stimulus package that provides financial relief to businesses and individuals during this unprecedented pandemic.
You can access the CARES Act in its entirety (800 pages) through the link provided at the end of this document. However, the paragraphs below outline the components that pertain solely to your retirement plan, and how Aegis is facilitating the necessary compliance for our clients.
1. COVID-19 Withdrawal: This is a NEW distribution option that deals specifically with the coronavirus. This new distribution is available immediately to a participant who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19); whose spouse or dependent is diagnosed with such virus; who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced due to such virus; being unable to work due to lack of child care due to such virus; or closing or reducing hours of a business due to such virus. A participant may take a distribution of up to the lesser of 100% of their vested account balance or $100,000. Unlike most distributions taken under the current hardship distribution rules, the 10% early withdrawal penalty DOES NOT apply to this distribution.
Two additional features meant to reduce the financial tax impact of this withdrawal have been included in the CARES Act.
- Unlike hardship withdrawals where the taxation applies in the year the withdrawal is taken, taxation for this distribution can be spread out over 3 year.
- If elected, participant withdrawals may be repaid PRETAX all or in-part within 3 years from the date of the withdrawal.
Notably, prior distributions taken since January 1, 2020 will qualify for this favorable tax treatment if all other conditions above are met. Finally, no documentation is required. A participant can “SELF-CERTIFY” that they are eligible for the withdrawal.
2. Participant Loans: The CARES Act enhances loan provisions; they apply to existing loans as well as to any new loan taken. The maximum amount that may be taken as a loan is now the lesser of $100,000 (previously $50,000) or 100% (previously 50%) of a participants vested account balance. If a participant meets the qualifications for a COVID-19 withdrawal (from #1 above), repay ments may be SUSPENDED for one year. Interest that accrues on the loan will simply be added to the outstanding loan balance and the payment will be re-amortized by adding on 1 additional year to the original loan end date. These repayment changes are OPTIONAL and may be applied on a participant by participant basis.
3. Required Minimum Distributions: Required minimum distributions (aka Age 70 ½ or 72 distributions, depending when the participant was required to begin taking) in 2020 are WAIVED. If a participant has already taken their 2020 required minimum distribution, this distribution is now eligible to be rolled over to an IRA or an eligible retirement plan (your Plan) if it can be rolled over within 60 days of the distribution.
When Aegis sponsors your Plan document, we prepare the necessary amendments to ensure compliance with any changes from Washington. All plans will need to be amended no later than the last day of 2022 Plan year. We are working closely with our record keeping partners to ensure the features included in the CARES Act can be accommodated on their systems as soon as possible.
Please let us know if you have any questions. We will get through this crisis, we always do. In the meantime, thank you for your support, please stay safe and be healthy.
The complete CARES Act is located at: https://www.congress.gov/116/bills/hr748/BILLS-116hr748eas.pdf