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CARES Act: What Plan Sponsors Should Know

Updated: May 8, 2020

On March 27, 2020, the CARES Act was enacted to help individuals who are impacted by the effects of the COVID-19 virus. There are several provisions designed to help retirement plan sponsors and participants. RISE Consulting specializes in retirement plan design, compliance and fiduciary governance, and is here to support you if you need assistance with navigating the CARES Act requirements.

COVID-19 Relief Provisions Now Available to Plan Participants

Corona Virus Related Loans

From March 27, 2020 through September 23, 2020 the maximum loan amount has increased to the lesser of 100% of the account balance or $100,000. In addition to increased borrowing limits, repayment for current outstanding loan payments from March 27, 2020 through December 31, 2020 may be suspended for up to 12 months as long as payments are current. Interest will continue to accrue during the suspension.

Corona Virus Related Distributions (CRD)s

Plan sponsors can offer penalty-free in-service withdrawals to eligible participants. These CRDs are only applicable to 401(k)s, 403(b)s, 457(b)s and IRAs. Plan sponsors are not required to certify eligibility, but the participant will need to be able to provide proof. Eligible plan participants may receive the lesser of a distribution of up to $100,000 or 100% of their (aggregate) vested account balance; exemption from the 10% excise tax (ordinary income tax would apply but withholding is optional); the ability to defer income tax payment over a 3-year period; and the ability to treat withdrawal as qualified rollover if repayments to a qualified plan are made within 3-year period.

Required Minimum Distributions (RMD)s

RMDs due in 2020 are not required to be made from 401(k), profit-sharing, 403(b), 457(b) or IRA retirement plans. This includes 2019 RMDs which were due by April 1, 2020 and RMD payments to be made by December 31, 2020. Any RMD that was previously distributed in 2020 is eligible to be rolled over.

Adoption Requirements for Plan Sponsors

Deferral of RMDs

Deferral of RMDs requires mandatory adoption and a plan amendment must be made to reflect the updates to the rule.

Corona Virus Related Loans and (CRD)s

It is optional for plan sponsors to adopt the new loan and CRD provisions. If they decide to elect one or both, they should amend the plan document in a timely manner; update the plan’s distribution or loan process to accommodate these changes; prepare the proper participant notifications; and if necessary, revise loan amortization schedules.

Amendment Deadlines

Deadlines apply to the mandatory RMD provisions as well as optional provisions, and must be retroactive to the date of operational effect. The amendment deadline is the last day of the first plan year beginning on or after January 1, 2022. For a calendar-year plan, the amendment deadline would be December 31, 2022. For a governmental plan, the deadline is the last day of the first plan year beginning on or after January 1, 2024. For a calendar-year plan, the amendment deadline is December 31, 2024.

The COVID-19 situation continues to evolve and change rapidly. This information is current as of the date of publication, but please continue to stay in contact with us regarding any questions you have.

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Disclaimer and Liability Limitations: Every effort has been made to provide you with the most accurate and current information on this subject matter as possible. Because Human Resources is a field of frequent change, the information contained herein should not be relied upon as the final source, since the information may have changed prior to time of use. The contents of this document are not intended to provide legal advice, nor is RISE Consulting, LLC engaged in rendering legal advice. If legal advice is required, the services of a legal professional should be sought. RISE Consulting, LLC, has endeavored to ensure accurate information has been conveyed in this employment tool and is not liable for any error or omission, or for any legal claims or damages that are beyond its control or are the result of actions for which it is not directly involved. Advisory services are offered by RISE Consulting, LLC, a Registered Investment Advisor in the States of Kansas and Missouri. Insurance services are offered by RISE Agency, LLC. RISE Consulting, LLC and RISE Agency, LLC are not affiliated with or endorsed by the Social Security Administration or any government agency.

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