CARES Act: Key Takeaways for Qualified Retirement Plans and Plan Participants

On March 27, 2020 President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  Below are some of the key takeaways as it pertains to qualified retirement plans and plan participants, as summarized by Joseph R. Schultz, CRPS® of UBS Financial Services Inc.*

Special rules for individuals affected by COVID-19

As described below, the CARES Act provides an exception to the 10% early distribution penalty and increases the plan loan limits for the following individuals affected by COVID-19:

  • Individuals diagnosed with COVID-19 by a CDC-approved test or whose spouse or dependent was so diagnosed, or
  • Individuals who experienced adverse financial consequences as a result of:
  • Being quarantined, furloughed or laid off due to the virus, or
  • Being unable to work because of lack of child care due to the virus, or
  • The closing or reduction of hours of a business owned by the individual due to the virus, or
  • Other factors determined by the Secretary of the Treasury.

Waiver of the 10% early distribution penalty for affected individuals.

For the individuals described above, the Act provides an exception to the 10% penalty that ordinarily applies with respect to distributions prior to age 59½. Those individuals will be able to receive penalty-free distributions of up to $100,000 from employer retirement plans and IRAs during 2020. Plan administrators can rely on a participant’s certification that he or she is an affected individual. The amount of the distribution will be included in gross income ratably over three years unless the individual elects otherwise. In addition, the individual can repay the amount of the distribution to the plan or IRA at any time within three years.

Increased plan loan limits for affected individuals.

The Act increases the limit on loans an affected individual can take from a plan to the lesser of $100,000 or 100% of his or her vested account balance. The due date for any loan repayment is delayed for one year from the date of enactment of the CARES Act.

Waiver of required minimum distributions

The Act waives any required minimum distribution from plans and IRAs for calendar year 2020. This includes required distributions to beneficiaries of deceased participants or account holders.

Expansion of DOL authority to postpone deadlines

The Act provides the Department of Labor with additional authority to postpone certain deadlines under ERISA.  In the coming weeks and months, it is likely the DOL and IRS will provide guidance on the CARES Act’s retirement provisions.


*The information above is summarized from the below publication of the National Association of Plan Advisors (NAPA):

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