Industry Insights

CARES Act: The Major Provisions That Affect Your Retirement Plan

WHAT IT IS:

The CARES Act legislation provides temporary financial relief to both the business and the employees affected by the Coronavirus.  Most of the provisions apply to 401(k), 403(b), IRA and Governmental 457(b) plans.  It is important to note that qualified individuals can claim the tax benefits of coronavirus-related distribution rules even if plan provisions are not changed.  Plan Sponsors reserve the right to not make any changes to the plan design.  Trinity is here as your partner and we will remain focused on the importance of long-term savings.


WHO QUALIFIES:

  • The participant has been diagnosed with a coronavirus (COVID-19 or SARS-CoV-2)
  • The participant’s spouse or dependent has been diagnosed with a coronavirus illness; or
  • The participant or participant’s spouse or a member of the household has suffered financially from the pandemic because:
    • Laid off, furloughed, quarantined, or had hours or pay reduced;
    • Cannot work due to the unavailability of childcare because of the pandemic; or
    • A business owned by a household member closed or reduced hours
    • A job offer was rescinded or delayed in start date

WHAT HAS CHANGED:

  • Defined Benefit Plan Provisions
    • Delays defined benefit contribution requirements
    • Extension of second six-year remedial amendment cycle
  • Plan Amendments
    • Additional time is provided to amend plan provisions
    • Plan Sponsors have until the last day of the plan year beginning in 2022
  • Withdrawal Provisions
    • The 10% penalty on early withdrawals is waived for coronavirus-related distributions made between 1/1/20 and 12/31/20
    • Coronavirus-related distributions are not subject to the 20% mandatory tax withholding and are permitted up to $100,000
    • Ordinary income tax will be paid ratably over a three-year period (1/3 each year) beginning with tax year 2020
    • Participants pay taxes on their withdrawal over a three-year period
    • If the money is paid back to the account, IRA or a qualified retirement plan within three years, the participant can amend the filings to be refunded. (always consult your CPA or tax specialist when filing taxes)
  • Loan Provisions
    • The loan limit increased from $50,000 to $100,000 for loans processed between 3/27/20 and 9/23/20
    • Any repayment of an existing loan due between 3/27/20 and 12/31/20 may be delayed for one year
  • RMD Provisions
    • RMDs for DC plans in 2020 are now optional and if already taken, can be rolled into an IRA if done within 60 days
    • All Plan Sponsors will need to amend the Plan Document to reflect the waiver, regardless of participant activity

WHAT DO YOU DO?:

Each provision is optional, temporary and applies to only those directly affected by the virus as outlined above. Please allow Trinity to work with you so you can make the absolute best decision possible for your plan. 
If you have any questions about what the CARES Act entails for you, please contact your dedicated Relationship Manger or Regional Vice President – Retirement Sales.