Reed Smith Client Alerts

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) and the President signed it into law.  The CARES Act provides funding for stimulus tax rebates to individuals and authorizes emergency loans to distressed businesses.  In addition, the Act has several impacts on employer-sponsored employee benefits programs.  Specifically, the CARES Act provides the following:
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Defined Contribution Plans

  • Authorizes COVID-19-related distributions of up to $100,000 from retirement plans through the end of 2020.  Qualified individuals are eligible to take distributions from defined contribution retirement plans or individual retirement accounts (IRAs) of up to $100,000 during 2020.  A “qualified individual” is a participant who (i) is diagnosed with COVID-19; (ii) has a spouse or dependent who is diagnosed with COVID-19; or (iii) experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to a lack of child care, or experiencing a closure or reduction in hours of a business operated by the participant due to COVID-19.  The plan administrator may rely on a participant’s certification that one or more of these conditions are satisfied without further documentation. 

These distributions are exempt from the 10 percent early withdrawal penalty, they are not subject to mandatory withholding, and, unless otherwise elected by the participant, federal income taxes related to these COVID-19-related distributions are spread ratably over the 2020, 2021, and 2022 tax years.  An individual who receives a COVID-19-related distribution is permitted, but not required, to return all or part of the distribution to the plan (or any other retirement plan in which the individual is then benefiting and which accepts rollover contributions) in one or more installments, at any time during the three-year period following the date of distribution. Such re-contributions are not subject to the limits otherwise applicable to annual retirement plan contributions.  

  • Temporarily increases the plan loan limit from $50,000 to $100,000 for qualified participants.  For retirement plans that offer plan loans, qualified participants are allowed to take a plan loan of up to the lesser of $100,000 (increased from $50,000) or 100 percent of their account balance (increased from 50 percent).  This increased plan loan limit applies for 180 days after enactment of the CARES Act.  A participant is eligible for this increased loan limit if he or she is a “qualified individual,” as described above.  
  • Delays plan loan repayments.  If the due date for any plan loan repayment occurs between the date of enactment of the CARES Act through the end of 2020, including payments on outstanding loans and payments on loans initiated at any point during the remainder of 2020, that due date will be delayed for one year.  The loan repayment period will be extended accordingly, and the remaining payments due with regard to such a loan will be adjusted to reflect the delay in the due date and any interest accruing during such delay.  A participant is eligible for these delayed due dates if he or she is a “qualified individual,” as described above.