What is Covered by the CARES Act and What Else Might be Coming?

Another crucial part of the CARES Act concerns the required minimum distribution (“RMD”). The age at which the RMD is triggered just changed from 72 to 70.5 as of January 2020. However, the CARES Act changed the RMD rules.

Earlier, we prepared an FAQ on how plan sponsors can use the CARES Act provisions to help their employees. This is one of a series of articles focused on the CARES Act. These articles expand on that information and we urge plan sponsors to review those FAQ and discuss with their leadership teams.

This article will focus on what aspects of the CARES Act involve retirement savings. Given that aim, it might be helpful to look at what exactly the CARES Act wanted to do. According to the US Treasury Department, “The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress … on March 27th, 2020.” It is an economic relief package totaling over $2 trillion with the aim of providing fast and direct economic assistance for American families and businesses. Examining the intent of the CARES Act can help us understand how its provisions might fare to any later challenges. Doing so can also help us understand what else might be coming.

Most of the coverage of the CARES Act concerns the paycheck protection provisions for small businesses to keep operating and the stimulus checks sent to Americans making under a certain amount. However, the CARES Act also changed some regulations on withdrawals from employee retirement plans.

The most important of these changes was to, if allowed by the plan, permit certain participants to withdraw, penalty free, up to $100,000 between January 1, 2020 and December 31, 2020. To be eligible for this penalty free withdrawal, the individual participant or their family member must meet one of two requirements: they must have been 1) diagnosed with COVID-19, or 2) suffered adverse financial consequences due to COVID-19 such as a loss of work, whether permanent or temporary. This change may adjust a retirement plan’s previous loan limits. It also extends the time to repay loans that would have been due between March 27, 2020 and December 31, 2020. As with other retirement plan loans, the plan participant must repay the loan within a specific time or the distribution will be taxable. Here, as we described in the FAQ, with the COVID-19 withdrawal, “the participant has three years from the day after the distribution was received to repay the amount into a qualified retirement plan (or any other plan or IRA that can accept rollovers).”

Another crucial part of the CARES Act concerns the required minimum distribution (“RMD”). The age at which the RMD is triggered just changed from 72 to 70.5 as of January 2020. However, the CARES Act changed the RMD rules. As we stated in the FAQ, “the CARES Act waives the requirement for any RMD that is required to be paid in 2020. This includes an individual’s first RMD which is attributable to 2019 (not paid by January 1, 2020). If an RMD has already been received during 2020, then the participant may roll it over and defer paying taxes, including rolling back into the plan.” The CARES Act also changes the deadlines for defined benefit and money purchase pension plans by extending the date for contributions that would have been due in 2020 to January 1, 2021.  

Analysts say that additional legislation is on its way to provide more money for both individuals and businesses. It’s unclear when or how much of this money may be on its way. It does seem likely that federal agencies, like the IRS, SEC, and DOL, may extend deadlines for filings and compliance documents. The intent of the CARES Act was to provide fast and direct relief to employees. Given that intent, future legislation could continue to make the restrictions on investment income easier.

These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, advisors and plan sponsors should consult with their compliance, finance and legal teams. The information here reflects a summary of our current understanding of certain provisions in the CARES Act. There are other significant changes in the CARES Act that may impact your business. As with any new law, the CARES Act’s meaning is subject to further clarification and change, as many questions are yet to be answered. Clients should consult with their tax and legal advisors regarding their specific situation.

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