On March 27, Congress gave final approval to the Coronavirus Aid, Relief, and Economic Security (CARES) Act—a sweeping, $2 trillion relief package in response to the COVID-19 outbreak, sending it to the president for signature. The Act will provide critical financial support to individuals and businesses. Included in the nearly 900-page bill are provisions that affect retirement plans, which could help relieve some of the financial stress individuals and employers are facing.

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.

Single-employer defined benefit pension plan funding relief

Any minimum contribution to a single-employer defined benefit plan that was due in 2020 can be delayed until January 1, 2021. The delayed contribution must be increased by interest accruing between the original due date and the payment date.

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.

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