CARES ACT – FAQs on Retirement Plans

The CARES Act was signed into law on March 27, 2020, and contains several provisions specific to retirement plans. Below is a list of Frequently Asked Questions (FAQs) we are hoping will address your immediate concerns. For further clarification and the next steps, please reach out to your dedicated Plan Analyst.

As a plan sponsor, what do I need to know?

To take advantage of the relief under the CARES Act, you must amend your current retirement plan. Because the CARES Act was drafted and enacted so quickly, the specific amendments are not yet available, however, by completing the Intent to Amend Form, this will allow your participants to take advantage of the various relief options.

Regarding the COVID-19 tax-favored withdrawal option, what are the advantages?

  • The 10% early withdraw penalty is not applicable for participants 59-1/2 & younger
  • Standard Federal Withholding is reduced from 20% down to 10% and participants may elect no withholding
  • Income taxes for the distribution can be spread over three (3) years
  • Maximum amount available to withdraw is $100,000, and participants may be permitted to recontribute the amount within 3 years (as a rollover) without regard to contribution limits.
  • Self-Certification – participants certify they have been affected by COVID-19

What about loans?

  • Loan limit has increased to 100% of the vested account, up to $100,000
  • Loan repayments can be deferred/delayed for up to one (1) year
  • Self-Certification – participants certify they have been affected by COVID-19

What if my retirement plan does not allow for loans or hardship distributions?

The Plan must be amended to add these features.

What if our retirement plan already allows for loans or hardship distribution?

The Plan Administrator must complete the Intent to Amend Form.

What qualifies as self-certification?

  • Employee is diagnosed with COVID-19 or SARS-CoV-2 illness
  • Employee’s spouse or dependent is diagnosed with a coronavirus illness
  • Employee experiences “adverse financial consequences” as a result of a quarantine, furlough, lay-off, reduction in work hours, business closure, lack of childcare, or other factors determined by the IRS due to coronavirus emergency

As a plan sponsor, if I choose to adopt the CARES Act, can I pick and choose?

Yes. The coronavirus related distributions and increased loan limits are optional plan provisions. Therefore, Plan Sponsors will need to evaluate which of the following options they want to offer:

  • Plan Sponsors may choose to do nothing
  • Plan Sponsors may add the increased loan limit and not offer the coronavirus distribution provision (CRD)
  • Plan Sponsors may add the CRD provision and not increase the loan limits
  • Plan Sponsors may choose to add both the increased loan limits and the CRD

What about Required Minimum Distributions (RMD) for 2020?

RMD’s have been waived for 2020.

Please Note:

Each employer is different. Each retirement plan is different. While the CARES Act provides relief for your participants, as the Plan Sponsor, you have options. Please reach out to your dedicated Plan Analyst to discuss the options so that you feel comfortable in making the decision that is the best for you and your employees. There are several areas of the CARES Act in which we are awaiting guidance from the IRS. As we continue to learn more, further updates will be provided.