Retirement Advisor Council Blog

The CARES Act: Coronavirus Aid, Relief, and Economic Security Act

On March 27, 2020, President Donald J. Trump signed into law the CARES Act, a $2 trillion stimulus package to help combat the coronavirus and its economic impact. 

care blog1The CARES Act provides economic relief to business owners and to hospitals and government agencies battling the coronavirus, the CARES Act provides the following temporary preservation of and access to accumulated retirement savings. 

Waiver of the Required Minimum Distribution rules. 
RMDs from any defined contribution plan or IRA for the 2020 calendar year are waived.

In-Service Distributions
Individuals "impacted by the coronavirus" will be able to take up to a $100,000 in-service distribution from their defined contribution plan and IRA anytime during the 2020 calendar year with the following accommodations. The distribution shall be made without regard to the IRC limitations for hardship distributions;

  • Exempt from the 10% early distribution penalty
  • Exempt from the 402(f) requirements and mandatory 20% withholding applicable to rollover distributions
  • The amount distributed may to be claimed as income over a three-year period beginning with the year the distribution would otherwise be taxable; and 
  • The amount distributed may be recontributed to the plan or IRA within three years, in which case the recontribution is treated as a direct trustee-to-trustee transfer within 60 days of the distribution,

Only individuals impacted by the coronavirus are eligible for the distributions. An individual impacted by the coronavirus is defined as one:

  • Who is diagnosed with coronavirus
  • Whose spouse or dependent is diagnosed, with either the SARS-CoV-2 or coronavirus disease,
  • Who has experienced adverse financial consequences resulting from being quarantined
  • Who is unable to work due to child care, furlough, job loss, etc.

Diagnosis of the virus is to be made by a CDC approved test; however, the employer may rely on the employee's self-certification. 

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Plan Loans
For individuals impacted by the coronavirus, as defined above, the maximum loan amount that can be taken from a plan is increased to the lesser of (1) $100,000 ( an increase from $50,000) or (2) the greater of $10,000 or 100% (from 50%) of the present value of the participant's vested benefit. 

Any loans taken by an individual impacted by the coronavirus may be taken anytime during the 180-day period beginning on March 27, 2020 the day the CARES Act became law. In addition, repayment of any loan otherwise due from the date of enactment through the remainder of calendar year 2020 will be delayed one year. 

Plan Amendments
Plan amendments to take advantage of the above relief must be made no earlier than the last day of the first plan year beginning on or after January 1, 2022 (or January 1, 2024 for government plans). 

Student Loans.
Student loans often compete with retirement savings. The CARES Act can offer relief of up to $5,250 in tax-free student loan repayments that meet certain requirements.

At the time of this publication there are additional relief packages under consideration in Washington. Many Americans are under a "stay at home" order. Altogether, approximately 250 million Americans - about 75% of the country - have been told to remain sheltered and, when engaged in essential activities, maintain at least six feet of distance from those who are not members of their immediate household. The impact on business both large and small continues to accrue. This is truly a pandemic. No region of the world is untouched. We will continue to monitor activities in Washington and keep you apprised of legislative or regulatory changes.