Coronavirus Aid, Relief, and Economic Security Act or the “CARES Act”
President Trump signed the CARES Act making it effective March 27, 2020. Certain provisions of the CARES Act may affect your 401(k), Profit Sharing or 403(b) Plan. These new provisions are optional changes you may make to your Plan.
Plans will need to be amended to take advantage of the Special Rules for use of Retirement Funds, either through distributions or loans.
A Coronavirus-Related Distribution (CRD) may be allowed from eligible retirement plans during calendar year 2020 to a participant
1. Who is diagnosed with the virus by a test approved by the CDC,
2. Whose spouse or dependent is diagnosed with the virus by a test approved by the CDC, or
3. Who experiences adverse financial consequences as a result of being quarantined, furloughed or laid-off or having work hours reduced, being unable to work due to lack of child care, closing or reduced hours of a business owned or operated by such an individual.
The Plan may allow a CRD to a participant up to $100,000. Such CRD will be exempt from 10% early withdrawal penalty if the participant is under age 59 ½, and the participant can spread the taxation over a 3 year period. Within the 3 year period, any CRD can be repaid to the plan.
The Plan may also allow extended loan provisions to those participants who meet the above CRD criteria. Current regulations limit loans to the lesser of 50% of the participant’s vested account balance or $50,000. The CARES Act allows plans to increase the loan provisions to the lesser of 100% of the participant’s vested account balance or $100,000. The CARES Act also allows loan payments to be suspended for the remainder of 2020. The maturity date of the loan could be extended for 1 year. The loan would need to be re-amortized accordingly.
Participants subject each year to Required Minimum Distribution will not be required to take a distribution in 2020. This provision is extended to IRA distributions.
Safe Harbor 401(k) plans may suspend Safe Harbor Match or Non-elective contributions but only after giving 30 day notice to employees.
Employee deferral, elective Roth contributions and loan payments must still be deposited to the Plan as before. There are no waivers or extensions on depositing any employee monies.
The Families First Coronavirus Response Act (FFCRA) was signed into law on March 18, 2020. The FFCRA expands the Family Medical Leave Act and may also affect your employees.