The Coronavirus Aid, Relief and Economic Security Act (CARES Act) signed by President Trump on March 27 is a $2 trillion stimulus package intended to provide financial aid to individuals and businesses negatively impacted by the COVID-19 global pandemic.1
Among many other provisions, the CARES Act provides relief to certain participants in employer-sponsored retirement plans2 in the form of expanded tax-preferred distribution and “re-contribution” rules, enhanced plan loan availability and repayment terms, and the optional waiver of certain required minimum distributions. The CARES Act also aids employers who sponsor retirement plans by delaying the minimum funding contributions for single-employer defined benefit plans until Jan. 1, 2021.
The following chart summarizes key terms of the CARES Act applicable to employer-sponsored retirement plans, identifies the types of plans and participants impacted and includes recommended action steps for plan sponsors.
Term | Plans Impacted | Participants Impacted | Plan Sponsor Action Steps |
"Coronavirus-related Distributions" "Coronavirus-related distributions" of up to $100,000 (within controlled group) available for distributions made between 1/1/2020 and 12/31/2020
|
Available if permitted plan terms |
Employee if:
|
If desired (optional) :
|
Participant Loan Repayments Participant loan repayments may be delayed
|
Defined contribution plans that permit participant loans (e.g., profit-sharing, money purchase, 401(k), 403(b) and governmental 457(b) plans) |
Employee if:
|
|
Participant Loans Plan loan limit for participant increased to lesser of
|
Defined contribution plans that permit participant loans (e.g., profit-sharing, money purchase, 401(k), 403(b) and governmental 457(b) plans) |
Employee if:
|
If desired (optional):
|
Required Minimum Distributions Certain required minimum distributions (RMDs) from specified defined contribution plans may be waived by participants
Allows retirees to avoid taxable distributions when the stock market is down Distributions made in 2020 that would have been RMDs but for the waiver are not eligible rollover distributions For beneficiaries, the five-year and ten-year distribution periods that may be applicable are determined without regard to calendar year 2020 |
Qualified defined contribution plans, Section 403(b) plans and governmental Section 457(b) plans |
Participants who have:
|
|
Minimum Funding Delays minimum funding contributions due in 2020 for single-employer defined benefit plans until January 1, 2021
Plan sponsor may elect to treat the plan’s adjusted funding target attainment percentage (AFTAP) for the last plan year ending before January 1, 2020, as the AFTAP for calendar year 2020 to avoid restrictions related to funding |
Defined Benefit Plans |
N/A |
|
Expansion of DOL Authority Permits DOL to postpone, up to one year, an ERISA filing deadline in the event of a “public health emergency”
|
Employee benefit plans subject to ERISA |
Potentially all participants in employee benefit plans subject to ERISA |
Monitor actions by the DOL, which provide compliance deadline relief in specific capacities |
Amendment Deadline Delays the deadline for CARES Act plan amendments for coronavirus-related distributions, changes to loan provisions and 2020 RMD waivers
|
Plans to which CARES Act provisions regarding coronavirus-related distributions, loan changes and RMD waivers apply |
N/A |
|
To obtain more information regarding this alert, contact the Barnes & Thornburg attorney with whom you work or Lori Shannon at 312-214-5664 or lori.shannon@btlaw.com.
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This Barnes & Thornburg LLP publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.
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1The CARES Act provides assistance related to the financial impact of the virus SARS-CoV-2 and the coronavirus disease 2019 (COVID-19).
2The CARES Act also includes changes to welfare benefit plans and certain executive compensation restrictions, which we will address in separate alerts.
3Plan sponsors may also consider expanding other in-service withdrawal provisions in plans to provide financial assistance to participants. Note that plan terms may also permit hardship withdrawals for any participant in a federally declared disaster area.
4Related to loan repayment compliance, discuss with third-party administrator: (i) methods of repayment besides payroll deduction (e.g., coupon books/checks, debits to checking accounts) and (ii) suspension of loan repayments during any leave of absence (which does not qualify for the above-described delayed repayment terms). Amendment to the plan and/or loan policy may be necessary.
5Applicable collective bargaining agreements and agreements with the PBGC should be reviewed to ensure ongoing compliance.
6Note related to defined benefit plan compliance: Sponsors of defined benefit plans should discuss with service providers temporary and permanent layoffs of plan participants that may result in a reportable event due to an active participant reduction, unless the PBGC grants relief (or a waiver is applicable).