On Friday, March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a massive relief bill for those suffering as a result of the Coronavirus pandemic.

First, the CARES Act relaxes the restrictions in defined contribution plans for plan participants and their beneficiaries to access their funds if needed to assist them in this difficult time.  The Act refers to “qualified individuals”

Who is a Qualified Individual”?

• The participant has been diagnosed with the virus (as confirmed by a CDC-approved test);

• The participant’s spouse or dependent has been diagnosed with the virus; or

  • The participant has suffered financially from the pandemic because:

    • The participant was laid off, furloughed, quarantined, or had hours reduced;

    • The participant cannot work due to the unavailability of child care because of the pandemic; or

    • The participant’s own business has had to close or reduce hours.

• The Plan Administrator may rely on the participant’s certification that they qualify for the distribution.

How much money can Qualified Individuals take a loan or a withdrawal?

Loan Limits Increased

Loan regulation under Section 72(p) is modified to permit loans of up to 100% of a qualified individual’s vested account or benefit, up to $100,000.  This provision covers loans made during the next 180 days. In addition, any loan payment due on any outstanding loan between March 27 and December 31, 2020, is delayed up to one year.  The five-year repayment period is also extended for one year.  Interest accrues on the loan during the delay period.

Hardship Distributions

“Coronavirus-related” distributions of up to $100,000 may be taken from the plan without the additional 10% premature distribution tax.  Hardship distributions are not eligible for rollover, so they are not subject to the 20% mandatory withholding tax.  However, the 10% withholding tax rules apply unless a participant waives the withholding or elects to have a different amount of taxes withheld.

Keep in mind, the distribution is exempt from the 10% penalty tax, it is still subject to ordinary income tax.  The participants may spread the taxes over a three-year period and may repay all or part of the distribution to the affected plan or any plan that can accept rollovers within such period.  Such repayment is treated as a tax-free rollover of the funds to the plan and is not adjusted for earnings.  Following procedures developed in connection with very similar relief for major hurricanes, participants who repay distributions can file an amended return to recover tax paid on income reported in earlier years.

Required Minimum Distribution Requirements for 2020

Participants will not be required to take Required Minimum Distributions in 2020 from defined contribution qualified plans, 403(b) plans, IRAs, and governmental 457(b) plans. However, if the required beginning date was April 1, 2020, and the plan hasn’t already distributed the first RMD, that RMD is waived as well.  If the RMD is due to death, the five-year maximum distribution period is determined disregarding 2020.

This guidance should prevent affected participants having to liquidate deflated investments during this period, permitting them time to recover value.